Question: Question 12. Consider the single index model. There are two risky assets available, stock B and the market index, as well as a risk-free asset.

Question 12. Consider the single index model. There are two risky

Question 12. Consider the single index model. There are two risky assets available, stock B and the market index, as well as a risk-free asset. Stock B has a A = 0.18, BA = 0, and o (CA) = 0.5. The market has expected return E[rm] = 0.13 and variance o = 0.2. The risk-free rate is rf = 0.01. You are a mean-variance optimizer with coefficient of risk aversion A = 4. Recall the following equation from modern portfolio theory: w* = A Find the optimal allocation of wealth. 15-(E[r] r51) Question 12. Consider the single index model. There are two risky assets available, stock B and the market index, as well as a risk-free asset. Stock B has a A = 0.18, BA = 0, and o (CA) = 0.5. The market has expected return E[rm] = 0.13 and variance o = 0.2. The risk-free rate is rf = 0.01. You are a mean-variance optimizer with coefficient of risk aversion A = 4. Recall the following equation from modern portfolio theory: w* = A Find the optimal allocation of wealth. 15-(E[r] r51)

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