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QUESTION 9 Anna makes her investment into one risk-free asset and two risky...

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Finance

QUESTION 9

  1. Anna makes her investment into one risk-free asset and two risky securities: stock G and stock H. Stock G has expected return of 8% and standard deviation of 10%, while stock H has expected return of 4% and standard deviation of 5%. The correlation coecient between the two risky securities is 0.2. The risk-free rate is 3%.

    a. (4 MARKS) what are the weights of stock G and stock H in the optimal risky portfolio?

    b. (4 MARKS) what are the expected return and standard deviation of the optimal risky portfolio above?

    c. (4 MARKS) What are the expected return and standard deviation of the complete portfolio if Annas coefficient of risk aversion is 4?

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