Assume you have all your wealth (a million dollars) invested in the Va

QUESTION

Assume you have all your wealth (a million dollars) invested in the Vanguard 500 index fund andthat you expect to earn an annual return of 12%, with a standard deviation in returns of 25%. Youhave become more risk averse, and so you decide to shift $200,000 from the Vanguard 500 indexfund to Treasury bills. The Treasury bill rate is 5%. Estimate the expected return
The expected return can be calculated with the help of weighted average of the portfolio. Out of one million, amount shifted to T-bills = 200,000 Return on T-bills = 5% Amount in Vanguard 500

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