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What is the expected return and standard deviation

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Question - The universe of available securities in a specific economy includes only two risky stock funds, namely A and B, and T-bills. The data for these assets are as follows:

Expected return A: 10% B: 30% T-bills: 5%

Standard deviation A: 20% B: 60% T-bills: 0%

Assume that the correlation between funds A and B is -0.2 and that the proportion of stock A in the optimal risky portfolio is WA=68.18%. Mrs Moneybags has a risk aversion coefficient of 5 and is willing to invest $100000.

Required -

1. What is the expected return and standard deviation of the optimal risky portfolio?

2. How much should Mrs Moneybags invest in stock fund A, stock fund B and T-bills?

Reference no: EM133019834

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