Question
In: Finance
You are considering investing $1,000 in a T-bill that pays 0.05 and a risky portfolio, P,...
You are considering investing $1,000 in a T-bill that pays 0.05
and a risky portfolio, P, constructed with two risky
securities, X and Y. The weights of X
and Y in P are 0.60 and 0.40, respectively.
X has an expected rate of return of 0.14 and variance of
0.01, and Y has an expected rate of return of 0.10 and a
variance of 0.0081.
If you want to form a portfolio with an expected rate of return of
0.11, what percentages of your money must you invest in the T-bill
and P, respectively?
How would I complete this on a scientific calculator?
Solutions
Expert Solution
Expected Return = Wa*Ra + Wp*Rp
Rp = Wx*Rx + Wy*Ry
Wa + Wp = 1
Rp = 0.60*14 + 0.40*10 = 12.4
11 = Wa*5 + (1-Wa)*12.4
11 = 5Wa + 12.4 - 12.4Wa
7.4Wa = 1.4
Wa = 1.4/7.4 = 0.1892
Wp = 0.8108
Money invest in T bill = 189.20
Money invested in P = 810.80
Kindly do inform me in case you have any queries.
jeff jeffy answered 2 years agoRelated Solutions
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