Question: You survey a client and you conclude that she can tolerate a standard deviation T of at most 14%. You can allocate your client's wealth

You survey a client and you conclude that she can tolerate a standard deviation T of at most 14%. You can allocate your

You survey a client and you conclude that she can tolerate a standard deviation T of at most 14%. You can allocate your client's wealth into a corporate bond fund, a common stock fund, and a U.S. TBills (risk -free), with the following means and standard deviations: The correlation between the stock fund and the bond fund is B,S=0.6. a) Find the optimal risky portfolio (5 points) wB=%%wS= b) Find the expected return and risk of the optimal risky portfolio (5 points) E(Rrisky)=%risky= c) Draw the Capital Allocation Line of the optimal risky portfolio. (5 points) - Clearly identify the risk and return of the optimal risky portfolio - Clearly identify the risk free rate - Find the Sharpe ratio of this CAL SCAL= d) Find the weights your client should allocate into the bond fund (wB), the common stock fund (wS), and into the risk-free asset (wf). (Remember that wB+wS+wf=1). (5 points) e) Finally, find the return of the portfolio that you found in e). Verify that the standard deviation of the risky portfolio is exactly 15%. (5 points) E(Rfinal)=%final= You survey a client and you conclude that she can tolerate a standard deviation T of at most 14%. You can allocate your client's wealth into a corporate bond fund, a common stock fund, and a U.S. TBills (risk -free), with the following means and standard deviations: The correlation between the stock fund and the bond fund is B,S=0.6. a) Find the optimal risky portfolio (5 points) wB=%%wS= b) Find the expected return and risk of the optimal risky portfolio (5 points) E(Rrisky)=%risky= c) Draw the Capital Allocation Line of the optimal risky portfolio. (5 points) - Clearly identify the risk and return of the optimal risky portfolio - Clearly identify the risk free rate - Find the Sharpe ratio of this CAL SCAL= d) Find the weights your client should allocate into the bond fund (wB), the common stock fund (wS), and into the risk-free asset (wf). (Remember that wB+wS+wf=1). (5 points) e) Finally, find the return of the portfolio that you found in e). Verify that the standard deviation of the risky portfolio is exactly 15%. (5 points) E(Rfinal)=%final=

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