Question
You have a choice of investing $1000 in the following two risky mutual funds. Bond fund (1) Stock fund (2) Expected Return 10% 20% Std.
You have a choice of investing $1000 in the following two risky mutual funds.
| Bond fund (1) | Stock fund (2) |
Expected Return | 10% | 20% |
Std. Deviation | 10% | 20% |
Correlation (stock fund, bond fund) = 0
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If you choose to invest in the minimum-risk portfolio composed from the two risky funds, how much is invested in the Bond Fund? Stock Fund?
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What is the expected return and standard deviation of the minimum risk portfolio?
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Using the principle of dominance should you consider investing (Yes or No) in the following portfolios composed from the two risky funds: P (1, 0)? P (.85, .15)? P (.15, .85)? P (0, 1)? (No calculations needed here)
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