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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 a return volatility of 25%, and Y has a return volatility of 30%. The correlation between X and Y is -0.2. If you decide to hold a complete portfolio that has a return volatility of 15%, how much should you invest in the Treasury bills?
$1,000
$687
$130
$220
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