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What fraction of your portfolio must you invest

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Question - The risky portfolio Q consists of 2,500 shares of Google and 7,500 shares of Yahoo. Assume that Google has a share price of $4, an expected return of 18 per cent, and a standard deviation of 25 per cent. Yahoo has a share price of $2, an expected return of 15 per cent, and a standard deviation of 20 per cent. The correlation between the two is 0.5, and the risk-free rate of interest is 2 per cent.

What fraction of your portfolio must you invest in risky portfolio of Q and risk-free to have a portfolio standard deviation of 12 per cent?

Reference no: EM132563981

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