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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

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.

The risky portfolio is formed by allocating 60% of your wealth to a risky portfolio (formed by investing equally in the stock and the bond), and 40% of your wealth to the T-bill money market fund.

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, the bond, and risk-free asset should you be holding in the complete portfolio?

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