Suppose there is an exchange traded fund, VT ETF, that replicates the performance, in $USD, of all the stocks in the world, and there is also an exchange traded fund, BIL ETF, that replicates the performance of short-term Treasury Bills. VT has an annual expected return of 11% and the standard deviation of its return is 19%. BIL has an annualized expected return of 5.25% and an annual standard deviation equal to 2%. Furthermore, the correlation coefficient between the returns of the two ETFs is -0.3. There are no other investable assets in the world.  An investor wants an investment portfolio with a standard deviation of 8%.

What portion of his wealth would you suggest investing in VT and BIL?

Answer rating: 100% (QA)

To determine the optimal portfolio allocation for the investor we can follow these steps 1 Define va... View the full answer