Graph the investment opportunity set of the stock/bond portfolios. If the risk free rate is 8%,...
Graph the investment opportunity set of the stock/bond portfolios. If the risk free rate is 8%, Draw the tangent line determine the % stocks in the optimal portfolio. The correlation between stocks and bonds is 0.10
| stocks% | Bonds% | Expected return% | standard dev% |
| 0 | 100 | 12 | 15 |
| 20 | 80 | 13.6 | 13.94 |
| 40 | 60 | 15.2 | 15.70 |
| 60 | 40 | 16.8 | 19.53 |
| 80 | 20 | 18.4 | 24.48 |
| 100 | 0 | 20 | 30 |
Homework Answers
Answer : Plot standard deviation vs Expected Return (X vs. Y).
Draw a line tangent to the curve from the point x=0 and y=12. The Rf=12%.
The point of intersection gives the optimal portfolio.
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Graph the investment opportunity set of the stock/bond
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