Question

In: Finance

You have the choice of investing in a risky asset that isexpected to pay 12%...

You have the choice of investing in a risky asset that is expected to pay 12% with a standard deviation of 22% and a T-bill paying 3%. If your goal is to construct a portfolio with an expected return of 10%, what portion of your portfolio should you invest in the risky asset? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Weight in Risky Asset? ______%

Solutions

Expert Solution

Portfolio Return:
Portfolio ret is weighted avg return of Individual securities in portfolio.

Let X be the weight of investment in Risky Asset.

Stock Weight Ret WTd Ret
Risky portfolio X     0.1200 0.12X
Risk Free Asset 1-X     0.0300 0.03-0.03X
Portfolio Ret Return 0.03+0.09X

Given 0.03 + 0.09X = 0.10

0.09X = 010 - 0.03

= 0.07

X = 0.07 / 0.09

= 0.7778 I.e 77.78%


Related Solutions

Q1) You have a portfolio of one risky asset and one risk-free asset. The risky asset...
Q1) You have a portfolio of one risky asset and one risk-free asset. The risky asset has an expected return of 20% and a variance of 16%. The T-bill rate (that is the risk-free rate) is 6%. Your client Mary is thinking of investing 75% of her portfolio in the risky asset and the remaining in a T-bill. If Mary wants to find a general equation for the expected return and risk of her portfolio what are the equations that...
You invest all your money into a risky asset and a risk-free asset. The risky asset...
You invest all your money into a risky asset and a risk-free asset. The risky asset has an expected return of 0.065 and a standard deviation of 0.25, the risk-free asset returns 0.025. What is the return on your combined portfolio if you invest 0.4 in the risky asset, and the remainder in the risk-free asset? Round your answer to the fourth decimal point.
Consider the decision problem of investing an amount of wealth WW into a risky asset with...
Consider the decision problem of investing an amount of wealth WW into a risky asset with return R={0.1with probabilityp−0.05with probability1−pR={0.1with probabilityp−0.05with probability1−p and into a risk-less asset with risk-free interest rate r=2%r=2%. You are a risk averse investor with utility function U(WT)=10+ln(WT)U(WT)=10+ln⁡(WT) where WTWT is the amount of wealth at the end of the investment. a) Find the optimal allocation in risky and risk-less assets as a function of the probability pp and the initial amount of wealth WW invested....
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).
You have $100 to invest in a portfolio. The portfolio is composed of a risky asset...
You have $100 to invest in a portfolio. The portfolio is composed of a risky asset with an expected rate of return of 12 percent and a standard deviation of 15 percent and a Treasury bill with a rate of return of 5 percent. What percentage of your money should be invested in the risky asset to form a portfolio with an expected rate of return of 9 percent?
1.Suppose you have a riskless asset with a rate of return of 0.05 and a risky...
1.Suppose you have a riskless asset with a rate of return of 0.05 and a risky asset with an expected rate of return of 0.12 and a standard deviation of 0.16. What portfolio combination of these two assets will yield an expected rate of return of 0.08? What is its standard deviation? (2 pts)
Risky Asset A and Risky Asset B are combined so that the new portfolio consists of...
Risky Asset A and Risky Asset B are combined so that the new portfolio consists of 70% Risky Asset A and 30% Risky Asset B.  If the expected return and standard deviation of Asset A are 0.08 and 0.16, respectively, and the expected return and standard deviation of Asset B are 0.10 and 0.20, respectively, and the correlation coefficient between the two is 0.25: What is the expected return of the new portfolio consisting of Assets A & B in these...
Risky Asset A and Risky Asset B are combined so that the new portfolio consists of...
Risky Asset A and Risky Asset B are combined so that the new portfolio consists of 70% Risky Asset A and 30% Risky Asset B. If the expected return and standard deviation of Asset A are 0.08 and 0.16, respectively, and the expected return and standard deviation of Asset B are 0.10 and 0.20, respectively, and the correlation coefficient between the two is 0.25: (13 pts.) a) What is the expected return of the new portfolio consisting of Assets A...
You are considering investing $2,500 in a complete portfolio. The complete portfolio is composed of Treasury bills that pay 5% and a risky portfolio, P, constructed with two risky securities, X and Y
You are considering investing $2,500 in a complete portfolio. The complete portfolio is composed of Treasury bills that pay 5% and a risky portfolio, P, constructed with two risky securities, X and Y. The optimal weights of X and Y in Pare 75% and 25% respectively. X has an expected rate of return of 18%, and Y has an expected rate of return of 14%. To form a complete portfolio with an expected rate of return of 8%, you should...
You are considering investing $10,000 in a complete portfolio. The complete portfolio is composed of Treasury bills that pay 3.75% and a risky portfolio, P, constructed with two risky securities, X and Y.
You are considering investing $10,000 in a complete portfolio. The complete portfolio is composed of Treasury bills that pay 3.75% and a risky portfolio, P, constructed with two risky securities, X and Y. The optimal weights of X and Y in P are 32.7% and 67.3%, respectively. X has an expected rate of return of 8.5%, and Y has an expected rate of return of 13.8%. The dollar values of your positions in X, Y, and Treasury bills would be...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT