Problem 22

Intro

You have $9,000 to invest. You've done some security analysis and generated the following data for three stocks and Treasury bills, including weights in the optimal risky portfolio (ORP) from doing Markowitz portfolio optimization:

Security	Stock A	Stock B	Stock C	T-bills
Expected return (%)	12	10	5	4
Variance	0.04	0.03	0.02	0
Beta	1.2	1.5	0.8	0
Weight in ORP (%)	57	18	25	0

Attempt 1/10 for 12 pts.

Part 1

If you want to achieve an expected return of 9% for the complete portfolio, how much money should you invest in stock B (in $)?

Attempt 2/10 for 8 pts.

Part 2

What is the ratio of the Sharpe ratio of the complete portfolio to the Sharpe ratio of the ORP?