Question

In: Finance

You have the following assets available to you to invest in: Asset Expected Return Standard Deviation...

You have the following assets available to you to invest in:

Asset

Expected Return

Standard Deviation

Risky debt

6%

0.25

Equity

10%

.60

Riskless debt

4.5%

0

given =The coefficient of correlation between the returns on the risky debt and equity is 0.72,

previously solved = the composition of the optimal risky portfolio of these assets is -0.42, the expected return on this portfolio is 11.663796% and the standard deviation on this portfolio is 78.10%

2D. Hector has a coefficient of risk aversion of 1.8. What percentage of his assets should he invest in the risky portfolio? 5 points

2E. What would the expected return be on Hector’s portfolio? 2 points

2F. What would the standard deviation of Hector’s portfolio be? 3 points

Solutions

Expert Solution

Please refer to below spreadsheet for calculation and answer. Cell reference also provided.

Cell reference -

jeff jeffy answered 1 year ago
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