1. Solve for Return of Risk Free Asset and its averageYearRisk free rate (%)Inflation (%)Return risk-free asset20114.513.00???20123.112.20???20132.612.70???20142.751.70???20152.341.70???20161.781.50???20171.771.90???20182.021.80???20190.901.80???20200.020.90???Average2.18% ???2. Assuming the following:Average Return (Risky Portfolio)3.86%Standard Dev (Risky Portfolio)10.56%Average Risk Free Rate2.18%Return on Risk Free Asset Avg???Using the formula: E(rc)=rf + y* (E(rp) - rf)Solve for: 1. % of Risky Assets (y):2. % of Risk Free Assets (1-y):Note: You wish to generate a 7% return for your complete portfolio E(rc)

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1. Solve for Return of Risk Free Asset and its average Year Risk free rate (%) Inflation (%) Return risk-free asset 2011 4.51 3.00 ??? 2012 3.11 2.20 ??? 2013 2.61 2.70 ??? 2014 2.75 1.70 ??? 2015 2.34 1.70 ??? 2016 1.78 1.50 ??? 2017 1.77 1.90 ??? 2018 2.02 1.80 ??? 2019 0.90 1.80 ??? 2020 0.02 0.90 ??? Average 2.18% ???

1. Solve for Return of Risk Free Asset and its average Year Risk free rate (%) Inflation (%) Return risk-free asset 2011 4.51 3.00 ??? 2012 3.11 2.20 ??? 2013 2.61 2.70 ??? 2014 2.75 1.70 ??? 2015 2.34 1.70 ??? 2016 1.78 1.50 ??? 2017 1.77 1.90 ??? 2018 2.02 1.80 ??? 2019 0.90 1.80 ??? 2020 0.02 0.90 ??? Average 2.18% ???

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter8: Analysis Of Risk And Return

Section: Chapter Questions

Problem 26P

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Year	Risk free rate (%)	Inflation (%)	Return risk-free asset
2011	4.51	3.00	???
2012	3.11	2.20	???
2013	2.61	2.70	???
2014	2.75	1.70	???
2015	2.34	1.70	???
2016	1.78	1.50	???
2017	1.77	1.90	???
2018	2.02	1.80	???
2019	0.90	1.80	???
2020	0.02	0.90	???
Average	2.18%		???

Average Return (Risky Portfolio)	3.86%
Standard Dev (Risky Portfolio)	10.56%
Average Risk Free Rate	2.18%
Return on Risk Free Asset Avg	???