Question
Question 1 - Designing a risk-free asset (7+3) Assume you have 2 risky assets: a bond fund & an equity fund. w D bond fund
Question 1 - Designing a risk-free asset (7+3)
Assume you have 2 risky assets: a bond fund & an equity fund.
wD bond fund weight, with expected returns & variance: E(rD) and sD 2
wE stock fund weight, with E(rE) and sE2
sDE covariance between these funds = sD. sE with sD sE.
In what proportion do you have to mix these funds for a risk-free portfolio? What is the risk-free rate in this market?
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Focus On Personal Finance
Authors: Jack R. Kapoor, Les R. Dlabay Professor, Robert J. Hughes, Melissa Hart
5th Edition
0077861744, 978-0077861742
