$($Related to Checkpoint $8\mathrm{.}1$ on page $224)($Portfolio expected rate of return$)$

Penny Francis inherited a $$100,000$ portfolio of investments from her grandparents

when she turned $21$ years of age. The portfolio is comprised of the following three

investments:

a$.$ Based on the current portfolio composition and the expected rates of return, what

is the expected rate of return for Penny's portfolio?

b$.$ If Penny wants to increase her expected portfolio rate of return, she could increase

the allocated weight of the portfolio she has invested in stock $($Ford and Harley

Davidson$)$ and decrease her holdings of Treasury bills. If Penny moves all her

money out of Treasury bills and splits it evenly between the two stocks, what will

be her expected rate of return?

c$.$ If Penny does move money out of Treasury bills and into the two stocks she

will reap a higher expected portfolio return, so why would anyone want to hold

Treasury bills in their portfolio?