3.1   Problem 3: You have access to two investment opportunities. Mutual Fund A, which promises 20% expected return with a variance of 0.36, and Mutual Fund B, which promises 15% expected return with a variance 0f 0.12. The covariance between the two is 0.084.   Suppose that you seek to construct a portfolio with an expected return equal to 18%. What proportions of your wealth should you invest in A and B? What is the standard deviation of such portfolio?

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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3.1   Problem 3: You have access to two investment opportunities. Mutual Fund A, which promises 20% expected return with a variance of 0.36, and Mutual Fund B, which promises 15% expected return with a variance 0f 0.12. The covariance between the two is 0.084.

 
  1. Suppose that you seek to construct a portfolio with an expected return equal to 18%. What proportions of your wealth should you invest in A and B? What is the standard deviation of such portfolio?

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