There are only 6 investments available: 1) Stock Fund M, Expected Return = 25%, Standard Deviation = 32%; 2) Stock Fund R, Expected Return = 39%, Standard Deviation = 67%; 3) T-bills, Expected Return = 4%. Note that the correlation coefficient between funds M and R is .1.
A) Calculate the optimal risky portfolio and its expected return and standard deviation.
B) Find the slope of the CAL supported by T-bills and the optimal portfolio.
C) What percentage of their assets will an investor with M=5 invest in Funds M and R? What percentage will they invest in T-bills?
D) What percentage of their TOTAL ASSETS will the investor in part C have invested in Fund M?