question archive An investor invests 30% of his wealth in a risky asset with an expected rate of return of 0
An investor invests 30% of his wealth in a risky asset with an expected rate of return of 0
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An investor invests 30% of his wealth in a risky asset with an expected rate of return of 0.13 and a variance of 0.03 and 70% in a T-bill that pays 6%. His portfolio's expected return and standard deviation are ________ and ________, respectively.
a-0.087; 0.0630.
b-295; 0.1250.
c-081; 0.0520.
d-114; 0.128
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The expected return of the portfolio = Weight of Risky asset * Expected return of risky asset + Weight of T-Bill * Expected return of T-bill
The standard deviation of the portfolio = Weight of Risky asset * Standard deviation of risky asset + Weight of T-Bill * Standard deviation of T-bill
Option C is correct: 0.081; 0.0520
The expected return of the portfolio = Weight of Risky asset * Expected return of risky asset + Weight of T-Bill * Expected return of T-bill
The expected return of the portfolio = 0.30 * 0.13 + 0.70 * 0.06
The expected return of the portfolio = 0.081
Standard deviation = Sqrt(Variance)
Standard deviation of risky asset = Sqrt(0.03) = 0.1732050808
The standard deviation of the portfolio = Weight of Risky asset * Standard deviation of risky asset + Weight of T-Bill * Standard deviation of T-bill
The standard deviation of T-Bill = 0
The standard deviation of the portfolio = 0.30 * 0.1732050808 + 0.70 * 0
The standard deviation of the portfolio = 0.05196152424
The standard deviation of the portfolio = 0.0520
Option C is correct: 0.081; 0.0520
