Reference no: EM132951684

Currently your friend has $62,368,000 invested in the ABC fund (which has an expected return of 12% and a standard deviation of 19%) and $13,348,000 in the risk-free asset (which earns 2%). Let "RET" stand for overall expected return your friend has for their overall portfolio (this will have a value that is in between ABC's expected return and the risk-free rate--you will need to calculate it).

Problem 1: You are trying to convince your friend that instead of investing in a combination of ABC and the risk-free asset, it would be better to use a combination of the XYZ fund (which has an expected return of 14% and a standard deviation of 21%) and the risk-free asset. If your friend switches, choosing to invest the same total amount of money but in a way to still have an expected return of RET as before, what would be the standard deviation your friend would face for their overall portfolio? Note: that when your friend switches, the total dollars invested overall will be the same as before BUT the relative investment weights will change: the amount invested in XYZ will differ from those that were invested in ABC, and the amount invested in the risk-free will also change