19. The fund manager has invested 10 million euros into a bond portfolio which has expected annual return of 4% and expected risk of 7%.

To reduce his overall risk, portfolio manager decided to invest into high yield emerging debt with expected annual return of 16% and risk of 23%.

The correlation between two portfolios is -0.65

1. How much weight should be given to each in order to reduce overall risk level to a minimum?
2. What is the portfolio risk at these weights?
3. What would be the expected combined return ( % and money) from both portfolios if 2 million is invested to high yield debt?

	return	risk	a. Weight at min. risk	b. Risk at min. weight	Amount invested	c. Total return in euros
Bond portfolio	4.0%	7.0%			8 mio
High yield debt	16.0%	23.0%			2 mio
Correlation coefficient	-0.65