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Your friend Ivan's current investment consists solely of $2000 invested in HD stock. You advise Ivan that you can help him achieve higher expected returns
Your friend Ivan's current investment consists solely of $2000 invested in HD stock. You advise Ivan that you can help him achieve higher expected returns for the same level of risk by diversifying. Specifically, you propose that he forms a portfolio combining the HD stock with the YMH stock and the risk-free asset. Suppose that the risk-free rate is 1.5%, the HD stock has expected return of 21.64% and volatility 38%. Moreover, the tangent portfolio of the HD-YMH portfolio frontier has a Sharpe ratio of 0.65. What is the highest possible expected return Ivan can achieve while having the same volatility as the HD stock stock by forming a portfolio based on the two stocks and the risk-free asset? ? 26.20 % 0 23.06% 0 27.77 % 0 28.82%
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