Question

Given the data below, how should James, your client with $20,000 to invest and risk aversion coefficient of A=3, invest his money? The Optimal Risky Portfolio has 40% expected return and 30% standard deviation and consists of 70% equities and 30% corporate bonds. The Minimum Variance Portfolio has 25% expected return and 20% standard deviation and consists of 60% equities and 40% corporate bonds. Money can be invested risk free or borrowed at 4%

Equity: $4222 Bonds: $1809 T-Bill: invest $1031

Equity: $4000 Bonds: $1714 T-Bill: borrow $714

Equity: $4929 Bonds: $3286 T-Bill: borrow $3215

Equity: $4500 Bonds: $3000 T-Bill: borrow $2500

.

Answer 1