You decide to build a portfolio with Google, Apple stock, and T-bills. You estimate that Google has
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Question:
- You decide to build a portfolio with Google, Apple stock, and T-bills. You estimate that Google has an expected return of 8%, and Apple has an expected return of 12%, the risk-free rate on the T-bills is 5%. Google stock has a volatility of 20%, and Apple stock has a volatility of 20%. Assume Google and Apple stocks have a correlation of 0. Your risk-aversion parameter is 3. You have $10000 to invest.
- How much money should you invest in Apple?
- What is the Sharpe ratio of your overall portfolio?
- What is the Sharpe ratio of your overall portfolio if your risk-aversion parameter is 4?
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