Question
Megan has $10,000 USD to invest and decides to invest 90% of her fund in risk-free assets, and the remaining 10% in risky assets. She
Megan has $10,000 USD to invest and decides to invest 90% of her fund in risk-free assets, and the remaining 10% in risky assets. She would like to hear your suggestions about risky investments. You have prepared different risky portfolio investment plans. Please use the table below to answer the following parts.
Option | Weight of Stock | Weight of Bond | Risky portfolio return | Risky portfolio standard deviation | Sharpe ratio |
1 | 0.00% | 100.00% | 12.00% | 20.00% | 0.2000 |
2 | 10.00% | 90.00% | 13.00% | 18.49% | 0.2704 |
3 | 20.00% | 80.00% | 14.00% | 17.47% | 0.3434 |
4 | 30.00% | 70.00% | 15.00% | 17.03% | 0.4110 |
5 | 40.00% | 60.00% | 16.00% | 17.21% | 0.4647 |
6 | 50.00% | 50.00% | 17.00% | 18.00% | 0.5000 |
7 | 60.00% | 40.00% | 18.00% | 19.32% | 0.5177 |
8 | 70.00% | 30.00% | 19.00% | 21.06% | 0.5222 |
9 | 80.00% | 20.00% | 20.00% | 23.14% | 0.5185 |
10 | 90.00% | 10.00% | 21.00% | 25.48% | 0.5102 |
11 | 100.00% | 0.00% | 22.00% | 28.00% | 0.5000 |
If Megan would like to invest in a risky portfolio with portfolio risk less than 17.5%, which portfolio is the best candidate? How much (in USD) should she invest in bond? Please explain your answers.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started