The universe of available securities includes two risky stock funds, A and B, and T-bills. The data for the universe are as follows:

The correlation coefficient between funds A and B is −.2.

a. Draw the opportunity set of funds A and B.

b. Find the optimal risky portfolio, P, and its expected return and standard deviation.

c. Find the slope of the CAL supported by T-bills and portfolio P.

d. How much will an investor with A = 5 invest in funds A and B and in T-bills?

Transcribed Image Text:

Expected Return Standard Devlation A 10% 20% B 30 60 T-bills 5 0