To find the portfolio corresponding to an expected rate of return of 0.11 per year, riskless...

To find the portfolio corresponding to an expected rate of return of 0.11 per year, riskless asset with a interest of 6% per year and a risky asset with an expected rate of return of 14% per year and a standard deviation of 20%.

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Expert Solution

Rate of riskless asset (r_f): 6%

Risky asset (expected rate): 14%

Risky asset (standard deviation): 20%.

if we invest 37.5% (.375) in riskless asset and 62.5%(.625) in Risky asset then portfolio expected rate is 11%

E(Rp) = w₁E(R₁) + w₂E(R₂)

(0.375*6)+(0.625*14)= 11%

weight of riskless asset (w₁)= 37.5% and weight of risky asset (w₂) = 62.5%

jeff jeffy answered 2 years ago

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