Question: Consider two stocks, D and E, with expected returns and volatilities given by E[rD]=15%, sD=20%, E[rE]=20%, sE=40%. The riskless rate is 2%. Consider now two

Consider two stocks, D and E, with expected returns and volatilities given by E[rD]=15%, sD=20%, E[rE]=20%, sE=40%. The riskless rate is 2%. Consider now two portfolios P and Q with the following expected returns and standard deviations: E[rP]=16.2%, sP=18.77% and E[rQ]=16%, sQ=19.23%. These portfolios are formed by investing in stocks D and E and the riskless asset. It is known that one of these portfolios is a tangency portfolio for the efficient frontier constructed by investing in stocks D and E and the riskless asset. Determine the tangency portfolio and its portfolio weights.

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