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The risky asset has an expected return of 0.22 and a standard deviation of 0.31, and...

The risky asset has an expected return of 0.22 and a standard deviation of 0.31, and the T-bill has a rate of return of 0.04. What fraction of the portfolio must be invested in the risk-free asset to form a portfolio with a standard deviation of 0.19?

Round your answer to 4 decimal places. For example, if your answer is 3.205%, then please write down 0.0321.

Solutions

Expert Solution

Required Standard Deviation = 0.19

Let y be invested in risky asset,

So

0.19 = y(0.31)

y = 61.29%

Fraction in risk free asset = 1 - 0.6129

Fraction in risk free asset = 38.71%

jeff jeffy answered 2 years ago
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