Answer Happy

Penny Francis inherited a​ $200,000 portfolio of
investments from her grandparents when she turned 21 years of age.
The portfolio is comprised of Treasury bills and stock in
Ford​ (F) and Harley Davidson​ (HOG):
      
Expected
Return
​ $ Value
Treasury bills
4.7​%
70,000
Ford​ (F)
6.3​%
54,000
Harley Davidson​ (HOG)
12.6​%
76,000
.
a. Based on the current portfolio composition and the expected
rates of​ return, what is the expected rate of return
for​ Penny's portfolio?
b. If Penny wants to increase her expected portfolio rate
of​ return, she can increase the allocated weight of the
portfolio she has invested in stock​ (Ford and
Harley​ Davidson) and decrease her holdings of Treasury bills.
If Penny moves all her money out of Treasury bills and splits it
evenly between the two​ stocks, what will be her expected rate
of​ return?
c. If Penny does move money out of Treasury bills and into the
two​ stocks, she will reap a higher expected
portfolio​ return, so why would anyone want to hold Treasury
bills in their​ portfolio?