On the occasion of your birthday, your wealthy Aunt Hilda sends you a check for $5,000, under
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Question:
On the occasion of your birthday, your wealthy Aunt Hilda sends you a check for $5,000, under the express condition that you invest the money in either (or all) of the following: government bonds, Hilda’s Hybrids Inc., and/or Hilda’s Hubby Inc. The relevant statistics on each of these investments are provided below.
| Hilda's Hybrid | Hilda's Hubby | Goverment Bond | |
| Expected return | 30% | 16.25% | 10% |
| Variance | 28.58% | 2.30% | |
| Sigma | 53.46% | 15.17% | |
| Covariance of returns | 0.0343 | ||
| Correlation of returns | 0.4224 | =0.0343/(53.46%/15.17%) |
A. Show the capital market line (all the combination of investment risk-free asset and the two companies) Provide both chart and graph. The market Portfolio M is composed of equal proportions of the two risky assets
B. Supposed you invest in these proportions: 40% gov bond and 60% in portfolio M. Calculate the EXPECTED RETURN AND VARIANCE OF RETURN.
Expert Answer:
A The capital market line is the line that shows all the possible combinations of investment in the ... View the full answer
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