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how to solve this question? I want to know whether my solution is correct. ...

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Finance

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how to solve this question? I want to know whether my solution is correct.

the 9.12% is the required return for venture capital fund in the current portfolio of Tanglewood,

and the expected return of venture capital fund is 20%, so

20% > 9.12% makes it conclude that we should add more venture capital funds in the portfolio.

11-38. In addition to risk-free securities, you are currently invested in the Tanglewood Fund, a broad- based fund of stocks and other securities with an expected return of 12% and a volatility of 25%e Currently the risk-free rate of interest is 4%. Your broker suggests that you add a venture capital fund to your current portfolio. The venture capital fund has an expected return of 20%, a volatility of 80%, and a correlation of 0.2 with the Tanglewood Fund. Calculate the required return and use it to decide whether you should add the venture capital fund to your portfolio. 0.2 y8% 12% -4%) = 9-127. 25% 4+ t elECRT-f) EOR)- ECPve)-rf 4Y, + 0.8xo.2 O.25 P(RT) Corr SDCRvc) 9.(29%0 &% (6% iuon Your current portfolio, has an

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