Problem 7 Intro Assume that there are only two stocks in the economy, stock A and stock B. The risk-free asset has a return of 3%. The optimal risky portfolio, i.e., the portfolio with the highest Sharpe ratio, is given below: A C Stock A Stock B Risk-free asset 1 2 |Expected return 0.062 0.085 0.03 3 Variance 0.1089 0.0484 4 Standard deviation 0.33 0.22 5 Covariance 0.02178 Optimal risky 7 portfolio 8 Weights 0.9381-B8 0.0622 9 Expected return 0.0836 =B8*B2+C8*C2 10 Variance =B8^2 B3+C8^2*C3+2*B8*C8*B5 0.04553 11 Standard deviation B10 0.5 0.2134 12 Sharpe ratio = (B9-D2)/B11 0.2511 FAttempt 1/10 for 10 pts Part 1 What is the expected return of a portfolio composed of 90% of the optimal risky portfolio and 10% of the risk-free asset? 3+ decima Submit Attempt 1/10 for 10 pts. Part 2 What is the standard deviation of such a portfolio? 3+ decima Submit