It is given that Montreal Private Limited has constructed an optimum investment portfolio comprising equity and debt stocks on an economy’s stock market. It is given that the variance on equity...

It is given that Montreal Private Limited has constructed an optimum investment portfolio comprising equity and debt stocks on an economy’s stock market. It is given that the variance on equity investment is 676% and its expected return is 22%. On the other hand, the variance on debt equity facing the firm is 400%and the expected return on the debt is 16% while the risk-free rate of return is 8%.

a) Compute the weights of debt and equity in the optimum risky portfolio given that the covariance (debt and equity assets) is 96% and the optimum allocation of funds of the investor to risky assets = 64%;

b) Determine the variance of the optimum risky portfolio of equity and debt securities;

c) Allocate the firm’s resources among equity, debt and risk-free instruments based on the optimum weight of resources put into the risky portfolio;

d) Calculate the total return to the optimum risky portfolio;

e) Evaluate the total return and standard deviation of the complete portfolio;

f) Given that the firm had $48 400 to invest determine the amounts that were allocated to the various securities constituting the complete portfolio.