Question

Asset E(R) Std. deviation A 12% 40% B 20% 50% Your optimal risky portfolio formed with...

Asset

E(R)

Std. deviation

A

12%

40%

B

20%

50%

Your optimal risky portfolio formed with the two stocks above (A and B) has an expected return of 16% and a standard deviation of 32%. The risk-free rate is 4% and you have a risk-aversion parameter of 3. What is the proportion of your investment in A, B, and the risk-free asset, respectively, in your final portfolio?

A.

53.3%; 17.8%; 28.9%
B.

56.9%; 14.2%; 28.9%
C.

37.5%; 12.5%; 50.0%
D.

17.9%; 6.0%; 76.1%
E.

21.7%; 7.2%; 71.1%   
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