Invest in the seventh stock to maximize sharpe ratio

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Reference no: EM132052938

Suppose there are only thirty stocks to invest in the market. You initially believe their expected returns are all 9%, their variances are all 0.45, and there correlations are all zero. The risk free rate is 2% for the same period. Initially you have 15 million dollars to invest and construct a portfolio to maximize its Sharpe ratio. You have two analysts and they found out the eleventh stock is 22% overvalued and the twentieth stock is 18% undervalued. You update your belief on the expected returns based on your analysts’ firm valuations. How much should you invest in the seventh stock to maximize Sharpe ratio? Express your answer as dollar amounts without a dollar mark or commas.

Reference no: EM132052938

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