Thomas Reid is planning his $1 million retirement fund and decides to invest $300,000 in stocks, $500,000 in bonds, and $200,000 in Treasury bills. Donna Craig decides to invest all of her $500,000 retirement fund in bonds. The expected return on stocks equals 12% and the expected return on Treasury bills equals 4%.
Both investors compare their performance against a benchmark portfolio that equally weights stocks, bonds, and Treasury bills. The following data are provided for bonds:
Which portfolio has the highest expected return?
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A. B. C.Explanation