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 12.9% and an expected volatility of 18.1%. The Bond Fund has an expected return of 5.4% and an expected volatility of 7.5%. The T-Bill fund will yield a return of 2.2%. The correlation coefficient between the two risky assets is 0.19.
If your client (who wishes to be efficient in her investing) directs you to manage her $80,000 in a way that targets a return of 7.5% and if she directs you to create a Total Portfolio of the three funds, how much money should be in the Treasury Bill Fund? (Don't round interim calculations)
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