Question: Please show formula with solution Your client is considering three mutual funds: a stock fund, a real estate fund and a T-bill money market fund.

 Please show formula with solution Your client is considering three mutualfunds: a stock fund, a real estate fund and a T-bill money

Please show formula with solution

Your client is considering three mutual funds: a stock fund, a real estate fund and a T-bill money market fund. The sure return of the T-bill fund is 6%. The expected return and standard deviation for the stock fund and the real estate fund are given in the following table. The correlation between the stock fund and the real estate fund returns is 0.2 (i.e., p=0.2) Risky Assets Stock Fund (S) Real Estate Fund (R) Expected Return 15% 10% Standard Deviation 20% 15% (3) A portfolio that invests 60% in the stock fund and 40% in the real estate fund is the optimal risky portfolio. Compute the expected return and risk (standard deviation) of this portfolio. Show why your client should be interested in the optimal risky portfolio as compared to an investment in the stock fund alone

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