What are the asset allocation percentages of stock

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Reference no: EM132806388

Consider following return series of two stocks, A and B

Stock A Stock B

2.0% 12.5%

5.1% -9.2%

5.5% 8.7%

7.3% 10.4%

6.2% -7.2%

13.0% -9.6%

1.2% -5.4%

-7.0% 21.0%

5.5% 12.4%

-10.0% -15.0%

3.2% 35.7%

19.0% -14.2%

1.0% 27.9%

3.0% 16.5%

7.1% 6.6%

problem 1: What are the asset allocation percentages of stock A, B, and risk-free asset in the complete portfolio if the investor is seeking 4.5% return on his/her complete portfolio? What is the Sharpe Ratio of optimal risky portfolio? Assume that the prevailing rate on risk-free asset is 1.25%.

(hint: use geometric return for optimal risky portfolio weight calculation)

Reference no: EM132806388

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