You have been hired as a portfolio manager for a fancy hedge fund. Your first job is to invest $100,000 in a portfolio of two assets. The first asset is a safe asset with a certain return of 5%. The second asset is shares of a dying video-game store that has become popular with retail investors, it has a 20% expected rate of return, but the standard deviation of this return is 10%. Your manager wants a portfolio with as high a rate of return as possible while keeping the standard deviation at or below 4%. How much of the fund's money do you invest in the safe asset?
You have been hired as a portfolio manager for a fancy hedge fund. Your first job is to invest $100,000 in a portfolio of two assets. The first asset is a safe asset with a certain return of 5%. The second asset is shares of a dying video-game store that has become popular with retail investors, it has a 20% expected rate of return, but the standard deviation of this return is 10%. Your manager wants a portfolio with as high a rate of return as possible while keeping the standard deviation at or below 4%. How much of the fund's money do you invest in the safe asset?
Chapter31: Capital Markets
Section: Chapter Questions
Problem 2E
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You have been hired as a portfolio manager for a fancy hedge fund. Your first job is
to invest $100,000 in a portfolio of two assets. The first asset is a safe asset with a certain
return of 5%. The second asset is shares of a dying video-game store that has become
popular with retail investors, it has a 20% expected rate of return, but the standard
deviation of this return is 10%. Your manager wants a portfolio with as high a rate of
return as possible while keeping the standard deviation at or below 4%. How much of the
fund's money do you invest in the safe asset?
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