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Risky Asset 1 Risky Asset 2 Expected Return 0.11 .15 Standard Deviation 0.28 .88 The coefficient...

Risky Asset 1

Risky Asset 2

Expected Return

0.11

.15

Standard Deviation

0.28

.88

The coefficient of correlation ρ between these two assets is equal to .009, and the risk free rate is 3.8%.

2A. If you wished to construct the optimal risky portfolio using these two assets, what percentage this portfolio would consist of Asset 1? (10 points)

2B. What is the expected return of the portfolio from 2A?

2C. What is the standard deviation of the portfolio from 2A?

2D. If Rachel has a coefficient of risk aversion of 4.9, what percentage of her money should she invest in the riskless asset if the only risky assets she can invest in are the ones described above?

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