Check the question :-
Mr. Moroley has just finished reading a textbook about portfolio theory and he is keen to put his new-found knowledge into action with respect to savings of £1000 he wishes to invest. He has identified the efficient frontier for portfolios of risky assets according to the following table.
|
Portfolio
|
Expected return (%)
|
Standard deviation (%)
|
|
A
|
4
|
5
|
|
B
|
6
|
4
|
|
C
|
8
|
5
|
|
D
|
10
|
8
|
|
E
|
10.6
|
11
|
|
F
|
11
|
14
|
He has also estimated that the redemption yield on short-dated Treasury bills is 7 per cent and has identified the shape of a typical utility curve given his own attitude towards risk. Points that plot on this utility curve are as follows.
|
Expected return (%)
|
Standard deviation (%)
|
|
8.8
|
1
|
|
9
|
3
|
|
9.5
|
5
|
|
10.2
|
6
|
|
11.2
|
7
|
Using this information, construct an appropriate diagram that enables you to identify how Mr. Moroley will split his investment between Treasury bills and the market portfolio.