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What is the proportion of brother investment

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Reference no: EM132627333

You are the new investment manager of Michael and Ariel. You received from the previous investment manager of Michael and Ariel's partial information regarding their portfolios:

- Both have an optimal portfolio.

- The expected return in Michael's portfolio is 6%.
- The SD in Ariel's portfolio is 12%.

-You know that the current risk-free interest rate is 5% and the market portfolio has an expected return of 8% and a SD of 10%.

a. What is the proportion of each brother's investment in a risk-free asset out of their portfolio?

b. Is it possible to rank the brothers' risk preference? Explain.

c. What is the beta in each brother's portfolio?

d. Suppose that today Michael and Ariel received an offer to buy a share with an expected return of 6% and beta of 0.3. Will they accept the offer?

Reference no: EM132627333

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