Question
You are the financial adviser to three individuals, a young friend of yours, your Middle-aged uncle, and your older father or mother (Above 60 years).
You are the financial adviser to three individuals, a young friend of yours, your Middle-aged uncle, and your older father or mother (Above 60 years). Here are the current conditions: Risk-free assets are earning 4.5 % per year. Risky assets (or market portfolios) have an expected return of 14 % per year and a standard deviation of 20%. Using the mutual fund theorem or Separation theorem (see my lecture notes for chapter 5):
1. Construct an appropriate portfolio (Mix of risky assets and risk-free assets) for your young friend. And estimate the expected return and the risk (Standard deviation) of your young friend for the coming Year.
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