Exercise 1. Consider an economy with 2 risky assets with the following expected returns and standard deviations: 8% (14.

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Exercise 1 Consider An Economy With 2 Risky Assets With The Following Expected Returns And Standard Deviations 8 14 1 (102.8 KiB) Viewed 26 times

Exercise 1. Consider an economy with 2 risky assets with the following expected returns and standard deviations: 8% (14.14% TE(RA) E(RB %) TO(RA) (RB [ 15%) 20% The average correlation between the assets is 0.1. The weight of asset A in the economy is 40% and the weight of asset B is 60%. The risk-free rate is 3.5%. a) Mrs Pennymoney has invested million € in a minimum-risk portfolio with an expected return of 9%. How much has Mrs Pennymoney invested in risky assets? How much has she invested in the risk-free asset? b) Mr Poundmoney is a less risk averse investor. He has invested 2 million € in a maximum-expected return portfolio with a risk (variance) of 0.05. How much has Mr Poundmoney invested in each asset?