Find the expected return on the optimal risky portfolio

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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 .4. The risk-free rate of return is 5%.

1) Find the expected return on the optimal risky portfolio.

2) Suppose the investor has $1 million to invest and wants to have an expected return of 14.8% for her complete portfolio. Find the dollar amount of her investment in the risk-free asset, stock A, and Stock B.

Reference no: EM132206351

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