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Portfolio theory with riskless asset
Consider the following data:
Expected Return Standard Deviation
Russell Fund 16% 12%
Windsor Fund 14% 10%
S&P Fund 12% 8%
The correlation between the returns on the Russell Fund and the S&P Fund is .7. The
rate on T-bills is 6%. Which of the following portfolios would you prefer to hold in
combination with T-bills and why?
(a) Russell Fund
(b) Windsor Fund
(c) S&P Fund
(d) A portfolio of 60% Russell Fund and 40% S&P Fund.
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