Solution-Determine the tangency portfolio

Determine the tangency portfolio

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Reference no: EM133115615

You decide to invest your savings in a combination of (i) the risk-free asset (denoted RFR), (ii) a stock market index fund (denoted SF), and (iii) a corporate bond fund (BF). The annual returns of these assets have the following statistical properties:

Asset	E[R]	σ
RFR	0.01	0
SF	0.08	0.16
BF	0.06	0.08

Furthermore, the correlation between stock and corporate bond returns is equal to 0.20.

What is the tangency portfolio (i.e., the optimal mix) of the stock market index fund (SF) and the corporate bond fund (BF)?

(Hint: You will need to use Solver in Excel to augment the example we considered in class. Input the properties of the assets provided in the table above, define the slope of the capital allocation line (CAL), and then maximize this slope)

Reference no: EM133115615

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Determine the tangency portfolio

Reference no: EM133115615

Reference no: EM133115615

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