What is the expected return on the portfolio

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Reference no: EM131852681

Greta has a degree of risk aversion of A=3 when applied to return on wealth over a 1-year horizon. She is considering two portfolios, the S&P 500 and a hedge ffund. Rates are annual and continuously compounded. The S&P risk premium is 8.4%per year with an SD of 23.4%.hedge fund risk premium is estimated at 13.4% with aSD of 38.4%. The returns on both of these portfolios in Antony given year are uncorrelated with is own returns in any other years. They are also uncorrelated with the returns of the other portfolio in other years. The hedge fund claims the correlation coefficient between the annual returns on the S&P 500 and the hedge fund in the same year is zero but Greta is not convinced by this claim. Assuming the correlation between the annual returns on the two portfolios s 0.3 what would be the optimal asset allocation? Do not round intermediate calculations. Enter answer as decimals rounded to 4 places.

B. What is the expected return on the portfolio? Do not round intermediate calculations. Enter your answer as decimals to 4 places.

Reference no: EM131852681

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