Question
You are a Portfolio Manager who has a Stock Fund, a Bond Fund and a Treasury Bill Fund. The Stock Fund has an expected return
You are a Portfolio Manager who has a Stock Fund, a Bond Fund and a Treasury Bill Fund. The Stock Fund has an expected return of 13.2% and an expected volatility of 19.4%. The Bond Fund has an expected return of 5.5% and an expected volatility of 7.8%. The T-Bill fund will yield a return of 3.1%. The correlation coefficient between the two risky assets is 0.19.
Assume you have a client with $80,000. If she wants all of her money in the Risky Portfolio and if she wants to maximize her risk-return relationship, how much money should she have in the Stock Fund?
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