You want to invest in some combination of corporate debt, the S&P 500, and T-bills. A corporate debt ETF has an expected return of 5% and standard deviation of 10%. The S&P500 ETF has an expected return of 9% and standard deviation of 16%. Corporate debt and the S&P500 have a correlation of 0.5. T-bills have a yield of 2.0% and are considered risk free. You first form an optimal risky portfolio using the corporate debt and S&P500 ETFs. You then allocate your wealth between the optimal risky portfolio and T-bills. Assume that your risk aversion parameter A = 4. What fraction of your wealth do you allocate to the optimal risky portfolio? Group of answer choices 0.8698 0.5102 0.2390 0.9861 0.4827 please do not use excel and provide equations used
(Challenge) You want to invest in some combination of corporate debt, the S&P 500, and T-bills. A corporate debt ETF has an expected return of 5% and standard deviation of 10%. The S&P500 ETF has an expected return of 9% and standard deviation of 16%. Corporate debt and the S&P500 have a correlation of 0.5. T-bills have a yield of 2.0% and are considered risk free. You first form an optimal risky portfolio using the corporate debt and S&P500 ETFs. You then allocate your wealth between the optimal risky portfolio and T-bills. Assume that your risk aversion parameter A = 4. What fraction of your wealth do you allocate to the optimal risky portfolio?
Group of answer choices
0.8698
0.5102
0.2390
0.9861
0.4827
please do not use excel and provide equations used
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