Question: Question 2 Risky Asset 1 Risky Asset 2 Expected Return 0.15 .24 Standard Deviation 0.89 .91 The coefficient of correlation between these two assets is

Question 2

Risky Asset 1

Risky Asset 2

Expected Return

0.15

.24

Standard Deviation

0.89

.91

The coefficient of correlation between these two assets is equal to -0.4, and the risk free rate is 3.5%.

  1. If you wished to construct the optimal risky portfolio (the portfolio that all investors will wish to use as the risky component of their complete portfolio) using these two assets, what percentage this portfolio would consist of Asset 1, and what percentage would consist of Asset 2?
  2. What is the expected return and standard deviation of this portfolio?

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