Correlation coefficient between the two funds

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Reference no: EM13826630

Problem:

The universe of available securities includes only two risky stock funds, X and Y, as well as T-bills. The data for the investment universe are shown in the table below. The correlation coefficient between the two funds is -0.3.

Expected return Standard deviation

X 0.15 0.25

Y 0.35 0.55

T-bills 0.06 0

a. Find the optimal risky portfolio and its expected return and standard deviation.

b. Find the slope of the Capital Allocation Line supported by T-bills and the optimal risky portfolio.

c. If an investor's utility can be represented by U = E (r) - 6σ², how much will the investor invest in funds X and Y and in T-bills?

Reference no: EM13826630

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