Risky portfolio choicesuppose there are two risky assets d

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Risky Portfolio Choice
Suppose there are two risky assets, D and E. D has an expected return of 6% and standard deviation of 15%. E has expected return of 9% and standard deviation 25%. The correlation between the two assets is 0.2. The risk-free rate is 1%.
a. Find the allocation of D and E that creates the minimum-variance portfolio.
b. Find the optimal risky portfolio allocation of D and E (that maximizes Sharpe Ratio)
c. Find the expected return and standard deviation of the optimal risky portfolio.
d. Suppose an investor, with risk aversion A=2, has $50,000 to invest. What is the optimal allocation into D, E, and the risk-free asset (in terms of percentage and in terms of money)?

Reference no: EM13379087

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