Invest in risk free asset and risky asset

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Reference no: EM131844386

Suppose a firm in planning to invest $ 1,000,000 to invest in a risk free asset and a risky asset A. Assume that µf = 4%, µA = 14% and σA = 25%. The company has capital reserves that could cover $ 100, 000 but no more and would like as a result to to loose this amount or more with probability equal to 0.01. If Rp = wRA + (1−w)µf , the return of their investment, is normally distributed, find the value of w that this achieves requirement.

Reference no: EM131844386

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