Question

OPTIMAL PORTFOLIO PROBLEM

The parameters of the opportunity set are:

E(r_S) = 20%, E(r_B) = 10%, s_S = 38%, s_B = 28%, r = 0.15, r_f = 5%

From the standard deviations and the correlation coefficient we generate the covariance matrix [note that Cov(r_S, r_B) = rs_Ss_B]:

	Bonds	Stocks
Bonds	784.0	159.6
Stocks	159.6	1444.0

Find the weights on bonds and stocks for the optimal portfolio.

Answer 1

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