An investor can design risky portfolio based on two stocks

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Reference no: EM131182552

An investor can design a risky portfolio based on two stocks, A and B. Stock A has an expected return of 21% and a standard deviation of return of 39%. Stock B has an expected return of 14% and a standard deviation of return of 20%. The correlation coefficient between the returns of A and B is 0.4. The risk-free rate (T-bill rate) of return is 5%.

(a) The proportion of the optimal risky portfolio that should be invested in stock B is what?

(b) The expected return on the optimal risky portfolio is what?

(d) Investor wants to have an expected return of 10% for a complete portfolio. What proportion of his investment is in T-bills?

(e) What proportion of the investor’s complete portfolio is in stock A and in stock B?

Reference no: EM131182552

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