You have $10,000 to invest in a combination of a risk-free asset (), an S&P 500 index fund (S), and a corporate bond fund (B) with the following properties:

Asset	Expected return	Risk
Risk-free asset	0.05	0.00
S&P 500 index fund	0.12	0.19
Corporate bond fund	0.055	0.10

The correlation of the returns on the corporate bond fund and the stock index fund is equal to 0.30.

Assume that the tangency portfolio's return is equal to 9.8%. What dollar amounts should you invest in each of the three asset classes (F, S, and B) in order to achieve a standard deviation of 8.75% for the highest possible expected return?

Group of answer choices

$6615.40 in stocks, $3384.60 in risk-free rate

$2120.97 in stocks, $4145.56 in bonds, $3733.46 in risk-free rate

$4145.56 in risk-free rate, $2120.97 stocks, $3733.46 in bonds

$4145.56 in stocks, $2120.97 in bonds, $3733.46 in risk-free rate

$3384.60 in bonds, $6615.40 in the risk-free rate

Answer rating: 100% (QA)

Let w be the weight of SP500 index fund and 1w be the weight of corporate bond fun... View the full answer