Expected Return Standard Deviation

Stock fund (S) 20% 30%

Bond fund (B) 12% 15%

Correlation = .10

7. If you were to use only the two risky funds, and still require an expected return of 14%, what would be the investment proportions of your portfolio? Compare its standard deviation to that of the optimized portfolio in Problem 9. What do you conclude?

Problem 9

Stock Expected Return Standard Deviation

A 10% 5%

B 15 10

Correlation = 1

expected return 14%