Question: For the open response questions, please upload an excel file for the question Question 26 An investor can design a risky portfolio based on two

For the open response questions, please upload an excel file for the question

Question 26

An investor can design a risky portfolio based on two stocks, A and B. Use the following scenario:

State of the Economy Probability Stock Bond
Great 0.40 28%

2%
Normal 0.20 12%

4%
Bad 0.40 -6% 15%

The risk-free rate is 3.5%

a) Calculate the weights for the stock and bond for a minimum variance portfolio

b) Calculate the weights for the stock and bond for an optimal portfolio

c) Calculate the return and standard deviation for the optimal portfolio

d) An investor wants a complete portfolio that has an expected return of 15%. Calculate the weight of the risk-free asset.

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