Question
Stocks A and B have the expected returns and standard deviations shown in the table below:...
Stocks A and B have the expected returns and standard deviations shown in the table below:
|
Asset |
E(R) |
Std. deviation |
|
A |
15% |
30% |
|
B |
20% |
50% |
The correlation between A and B is 0.6. The risk-free rate is 3% and you have a risk-aversion parameter of 2. What is the proportion of your investment in A and B, respectively, in your optimal risky portoflio?
| A. |
25.0% in A ; 75.0% in B |
|
| B. |
76.6% in A; 23,4% in B |
|
| C. |
20.0% in A; 80.0% in B |
|
| D. |
80.0% in A; 20.0% in B |
|
| E. |
62.5% in A; 37.5% in B |
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