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1) You are a fund manager considering two risky assets that have a covariance of 20,...

1) You are a fund manager considering two risky assets that have a covariance of 20, a stock fund with an expected return of 17% and a standard deviation of 21%, a bond fund with an expected return of 7% and a standard deviation of 5%, and a T-Bill fund with a return of 6%.

a) What are the investment proportions of the two risky assets in the optimal portfolio?

b) What is the expected value of its rate of return?

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Answer #1

1. Proportion of x - 0.5357, Proportioned y - 0.4643

2. 12.36%

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