A customer has a portfolio with two holdings, stocks and bonds. From
past data analysis the expected return on stocks is 13.25% and the
standard deviation is 11.3%. The bonds have an average return of 5.5%
with a standard deviation of 2.6%. The customer currently holds 75%
stocks and 25% bonds. Please answer the following questions.
1. What is the expected return and standard deviation of the current portfolio?
2. What would the expected portfolio return be if the customer wanted
a maximum standard deviation of 6.75%?
3. For part 2 what would the allocation amounts be?
4. What would be your estimate of the minimum standard deviation
possible while keeping an expected return of at least 8.5%
5. For 4, what are the allocations?
6. Of the two portfolios (part 2 and part 4), which is favorable?