Question
You are considering investing $1,000 in a complete portfolio. The complete portfolio is composed of Treasury bills that pay 5% and a risky portfolio, P,
You are considering investing $1,000 in a complete portfolio. The complete portfolio is composed of Treasury bills that pay 5% and a risky portfolio, P, constructed with two risky securities, X and Y. The optimal weights of X and Y in P are 60% and 40%, respectively. X has an expected rate of return of 14%, and Y has an expected rate of return of 10%. To form a complete portfolio with an expected rate of return of 11%, how much should you invest in Treasury bills of your complete portfolio? If you wish to form a complete portfolio with an expected rate of return of 8%, how much should you invest in the risky portfolio? What is the proportion of X and Y in the complete portfolio respectively?
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