A risk-averse investor needs your help in allocating $1,000,000 between two assets A and B in...

A risk-averse investor needs your help in allocating $1,000,000 between two assets A and B in proportions that will minimize her exposure to risk. The average annual returns to two assets A and B are .30 and .18, respectively. The average return to risk free government bond is .04. The variance-covariance matrix of the two assets is given as: (Note: Round up numbers to no more than 2 significant decimals)

A B

.038	.008
.008	.028

a. Formulate the capital allocation problem as requested by the client (

[ E(R portfolio)= Rf*0 +0.30Wa+0.18Wb ]

b. Find the weights that will minimize the risk, GMV. W_A = [ ] W_B =

c. Find the portfolio’s return [ ], portfolio’s variance [ ], portfolio’s SD [ ].

Expert Solution

jeff jeffy answered 2 years ago

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