Consider four uncorrelated assets A,B,C,D with returns 1%, 3%, 5%, 8% and risks 0%, 10%, 20%, 30%.
What is the minimum-risk portfolio comprised of assets B,C,D only?
What is the tangency portfolio comprised assets B,C,D only? What is the risk?
You are the financial advisor and your client has a maximum risk tolerance of 5%.
How would you allocate your client’s portfolio between all four assets A,B,C,D? What is the corresponding return?