Question: Stocks A & B have the expected returns and standard deviations shown in the table below: Asset E(R) 25% 40% Std. deviation 40% 50% The

Stocks A & B have the expected returns and standard deviations

Stocks A & B have the expected returns and standard deviations shown in the table below: Asset E(R) 25% 40% Std. deviation 40% 50% The correlation between A and B is 0.6. The risk-free rate is 3% and you have a risk-aversion parameter of 2. What is the proportion of your investment in A and B, respectively, in your optimal risky portfolio? 31.3% in A; 68.8% in B 40.0% in A; 60.0% in B 60.0% in A; 40.0% in B 24.4% in A; 75.6% in B 55.6% in A; 44.4% in B

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