Assume that when investing in the risky portfolio, the investor must choose between just two risky assets: an equity fund and a corporate bond fund. The equity fund has an expected return of 35% and a standard deviation of 28%. The corporate bond fund has an expected return of 15% and a standard deviation of 15%. The equity fund and the corporate bond fund returns have a correlation of 0.30. The treasury bill rate is 6%. Suppose that the investor invests 61.31% of his allocation to the risky portfolio in the equity fund, and therefore 38.69% to the corporate bond fund. Assume that theses weights correspond to those of the optimal risky portfolio". Assume that the investor's risk aversion coefficient (A) equals 7.00. What is the composition of, expected return and standard deviation of the optimal risky portfolio?
Assume that when investing in the risky portfolio, the
investor must choose between just two risky assets: an
equity fund and a corporate bond fund. The equity fund has an expected return of 35% and a standard deviation of 28%. The corporate bond fund has an expected return of 15% and a standard deviation of 15%. The equity fund and the corporate bond fund returns have a correlation of 0.30. The treasury bill rate is 6%. Suppose that the investor invests 61.31% of his allocation to the risky portfolio in the equity fund, and therefore 38.69% to the corporate bond fund. Assume that theses weights correspond to those of the optimal risky portfolio". Assume that the investor's risk aversion coefficient (A) equals 7.00. What is the composition of, expected return and standard deviation of the optimal risky portfolio?
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