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You invest $98 in a risky asset and the T-bill. The risky asset has an expected...

You invest $98 in a risky asset and the T-bill. The risky asset has an expected rate of return of 18% and a standard deviation of 0.24, and a T-bill with a rate of return of 5%. A portfolio that has an expected outcome of $111 is formed by investing what dollar amount in the risky asset?

Round your answer to the nearest cent (2 decimal places).

Solutions

Expert Solution

Expected Return of Portfolio = (111 - 98)/98 = 13.27%

Let amount in risky asset be y,

So,

0.1327 = y(0.18) + (1 - y)(0.05)

y = 63.62%

Amount in risky asset = 98(0.6362)

Amount in risky asset = $62.34

jeff jeffy answered 2 years ago
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