Question 1

You are considering investing $1,000 in a complete portfolio. The complete portfolio is composed of Treasury bills that pay 5% and a risky portfolio, P, constructed with two risky securities, X and Y. The optimal weights of X and Y in P are 60% and 40%, respectively. X has a return volatility of 25%, and Y has a return volatility of 30%. The correlation between X and Y is 0. If you decide to hold a complete portfolio that has a return volatility of 15%, how much should you invest in the Treasury bills?

		$220
		$500
		$1,000
		$430

Question 12

Which of the following correlation coefficients will produce the most diversification benefits?

		-0.5
		-0.3
		0
		1