Consider the following information: Risky Assets:
Risky Asset: A B
Expected return: 12% 8%
Standard deviation 25% 14%
Correlation: .3
Risk-free rate = 3% (Treasury Bill Rate)
a. Find the expected return, variance, standard deviation of a portfolio with 30% of funds invested in A and 70% invested in B. Make sure to show your work.
b. Plot the investment opportunity set – the expected return-standard deviation relationship of possible portfolios. Make sure to label all axes and curves.
c. Find the minimum variance portfolio. Make sure to provide its expected return, variance, and standard deviation. Make sure to show your work.
d. Find optimal risky portfolio. Make sure to provide its expected return, variance, and standard deviation. Make sure to show your work.
e. Find the Sharpe ratio based on the optimal portfolio. Make sure to show your work.
f. Find the expected return, variance, and standard deviation of the complete portfolio. The investor places 60% of wealth in Optimal Risky Portfolio and 40% in Treasury bills. Make sure to show your work.