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Your uncle asks for investment advice. Currently, he has $100,000 invested in portfolio Pin Figure 11.10, which has an expected return of 10.5% and a
Your uncle asks for investment advice. Currently, he has $100,000 invested in portfolio Pin Figure 11.10, which has an expected return of 10.5% and a volatility of 8%. Suppose the risk- free rare is 5%, and the tangent portfolio has an expected return of 18.5% and a volatility of 13%. To maximize his expected return without increasing his volatility, which portfolio would you recommend? If your uncle prefers to keep his expected return the same but minimize his risk, which portfolio would you recommend Figure 11.10 The Tangent or Efficient Portfolio 25% Tangent or Efficient Portfolio 20% Efficient Frontier of Risky Investments Efficient Frontier Including Risk-Free Investment 15% Expected Return 10% P 5% Risk-Free Investment 0% 0% 2% 4% 6% 8% 10% 12% 14% 16% 18% 20% Volatility (standard deviation) Notes Comments DE
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