Question
The universe of available securities includes two risky stock funds, A and B, and T-bills. The data for the universe are as follows: Asset Expected
The universe of available securities includes two risky stock funds, A and B, and T-bills. The data for the universe are as follows:
Asset | Expected return | Standard Deviation |
A | 22% | 15% |
B | 17% | 33% |
T-Bills | 8% | ? |
The correlation coefficient between funds A and B is 0.7.
1. What is the standard deviation of the T-Bills?
2. Find the optimal risky portfolio, and its expected return and standard deviation.
3. How much will an investor with a risk aversion A=4 invest in funds A and B and in T-bills?
4. How much will a risk neutral investor invest in funds A and B and in T-bills?
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