Question

In: Finance

Suppose you have $1000 to invest, and you have only two assets to choose from.

Suppose you have $1000 to invest, and you have only two assets to choose from. There is a risky asset that has an expected return of 12% and a standard deviation of 15% and a risk-free asset that has an expected return of 5%.

  1. How would you form a portfolio that has an expected return of 9%?

  2. How would you form a portfolio that has a standard deviation of 6%?

Solutions

Expert Solution

weight of risky asset=Standard deviation of portfolio/Standard deviation of risky asset

1.
weight of risky asset=9%/15%=0.6000000

Invest 600 in risky asset and 400 in risk free asset

2.
weight of risky asset=6%/15%=0.4000000

Invest 400 in risky asset and 600 in risk free asset

jeff jeffy answered 3 years ago
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