In: Finance
In a universe with just two assets, a risky asset and a risk-free asset, what is the slope of the Capital Allocation Line if the Expected return of the risky asset is 6.22% and the standard deviation of the returns of the risky asset is 23.4%. The return on the risk-free asset is 3.21%
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Please find the answer below.
Statement showing computation:
Slope of Capital allocation line= (Expected return- risk free rate)/standard deviation
Slope of Capital allocation line= (6.22-3.21)/23.4
Slope of Capital allocation line= 3.01/23.4= 0.1286
Slope of Capital allocation line= 0.1286