In: Finance
You invest $100 in a risky asset with an expected rate of return
of 0.12 and a standard deviation of 0.15 and a T-bill with a rate
of return of 0.05.
What percentages of your money must be invested in the risky asset
and the risk-free asset, respectively, to form a portfolio with an
expected return of 0.09?
How would I complete this using a scientific calculator?
9% = w1(12%) + (1 - w1)(5%)
9% = 12%w1 + 5% - 5%w1
4% = 7%w1
w1 = 0.57
1 - w1 = 0.43
0.57(12%) + 0.43(5%) = 8.99%.