Form the optimal portfolio and calculate the proportion of each asset.

Question : Form the optimal risky portfolio and calculate the proportion of each asset.

Question 3 (15 points) Consider an economy with three risky asset classes: equities, bonds and property. The annual expected return and annualised standard deviation of return on each of these risky assets is as follows: Equities Bonds Property Expected return 8% 9% 12% Standard deviation 0.50 0.35 0.40 The correlation coefficients between the returns on equity, bonds and property are: Equities Bonds Property Equities 1.00 0.70 0.10 Bonds 0.70 1.00 0.15 Property 0.10 0.15 1.00 In addition, there exists a risk-free asset which can be loaned or borrowed at an annual interest rate rr of 3%