Question
You are considering investing in three different assets. The first is a stock, the second is a long term government bond and the third is
You are considering investing in three different assets. The first is a stock, the second is a long term government bond and the third is a T-bill money market fund that yields a sure rate of 5%. The probability distributions of both the risky assets:
Expected Return | Standard deviation | |
Stock(S) | 10% | 30% |
Bond(B) | 9 | 21 |
The correlation between the stock and bond returns is 0.20.
If as the investor you want an expected return of 15% from a complete portfolio C formed by using the risky portfolio and the risk-free asset, what proportions of the stock-fund, the bond fund, and risk-free asset should you be holding in the complete portfolio?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started