Question
Question 2 (30 points): You have the following assets available to you: Asset Expected Return Standard Deviation DullCo equity 0.06 0.094 ExcitingCo equity 0.19 0.24
Question 2 (30 points): You have the following assets available to you:
| Asset | Expected Return | Standard Deviation |
| DullCo equity | 0.06 | 0.094 |
| ExcitingCo equity | 0.19 | 0.24 |
| Riskless debt | 0.02 | NA |
The covariance between the returns on SafeCo equity and DangerCo equity is 8.865
a) 15 points: What fraction of the optimal risky portfolio is composed of SafeCo stock?
b) 5 points: What percentage of her money should Alice put in the risky portfolio if her coefficient of risk aversion is 2.6?
c)5 points: What percentage of her money should Bob put in the risky portfolio if his coefficient of risk aversion is 3.4?
d) 5 points: What is the difference between the Sharpe Ratios of Alices complete portfolio and Bobs complete portfolio?
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