Jessica inherited a $1000 portfolio of investments from her grandparents when she turned 21 years of...

Jessica inherited a $1000 portfolio of investments from her grandparents when she

turned 21 years of age. The portfolio is comprised of the following three investments:

expected return dollar value

Treasury bills 4.5% $40,000

Ford (F) 8.0% $30,000

Harley-Davidson (HOG) 12% $30,000

a. Based on the current portfolio composition and the expected rates of return, what is the expected rate of return for Jessicas portfolio?

b. If Jessica wants to increase her expected portfolio rate of return, she could increase the allocated weight of the portfolio she has invested in stock (Ford and Harley-Davidson) and decrease our holdings of treasury bills. If Jessica moves all of her money out of treasury bills and splits it evenly between the two stocks, what will be her expected rate of return?

c. If Jessica does move money out of the treasury bills and into the two stocks she will reap a higher expected portfolio return, so why would anyone want to hold treasury bills and their portfolio?

Solutions

Expert Solution

SEE THE IMAGE. ANY DOUBTS, FEEL FREE TO ASK. THUMBS UP PLEASE

jeff jeffy answered 5 months ago

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