Question

You have the following assets available to you to invest in: Asset Expected Return Standard Deviation...

You have the following assets available to you to invest in:

Asset

Expected Return

Standard Deviation

Risky debt

6%

0.25

Equity

10%

.60

Riskless debt

4.5%

0

The coefficient of correlation between the returns on the risky debt and equity is 0.72

2D. Hector has a coefficient of risk aversion of 1.8. What percentage of his assets should he invest in the risky portfolio?

2E. What would the expected return be on Hector’s portfolio?

2F. What would the standard deviation of Hector’s portfolio be?

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