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Suppose that you can invest in three assets: 1) risk-free Treasury bill with return of 5%; 2) A stock portfolio with expected return of 15% and standard deviation of 50%; 3) A fixed income portfolio with expected return of 10% and standard deviation of 20%. Assume that historically the correlation of the stock portfolio and fixed income portfolio is -0.2.

Suppose that you have $9,000 to invest and you want to invest 2/9 (22.22%) of your money in the risky portfolio o, how would you allocate your $9,000 among the three assets?

What’s the Sharpe ratio of your risky portfolio o? Is it higher than the Sharpe ratio of the fixed income portfolio or the stock portfolio?

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M92714801

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