XYZ Ranch must allocate $200,000 among 3 alternative enterprises:
1: Cow-Calf
Expected Net Cash Return 10%; 12% standard deviation
2: Hay Operation
Expected Net Cash Return 10%; 5% standard deviation
3: Mutual Fund
Expected Net Cash Return 10%; 3% standard deviation
For these alternatives she can choose one of the following two portfolios:
1. A) 50% Cow-Calf and 50% Hay
2. B) 50% Cow-Calf, 25% Hay, 25% Mutual Fund
The correlation coefficients for the returns of the three alternatives are: Cow, Hay = 0.30; Cow, Mutual = 0; Hay, Mutual = 0
