An investor can design a complete portfolio based on a risky portfolio and a risk-free asset. The risky portfolio has an expected return of 10% and a standard deviation of 20%. Risk-free rate is 5%. If the investment weight on the risky portfolio is 70% and the weight on the risk-free asset is 30%, what is expected return and standard deviation of the complete portfolio?

An investor can design a complete portfolio based on a risky portfolio and a risk-free asset. The risky portfolio has an expected return of 10% and a standard deviation of 20%. Risk-free rate is 5%. If the investment weight on the risky portfolio is 70% and the weight on the risk-free asset is 30%, what is expected return and standard deviation of the complete portfolio?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter8: Analysis Of Risk And Return

Section: Chapter Questions

Problem 13P

See similar textbooks

Similar questions

A portfolio that combines the risk-free asset and the market portfolio has an expected return of 7 percent and a standard deviation of 10 percent.The risk-free rate is 4 percent, and the expected return on the market portfolio is 12 percent. Assume the capital asset pricing model holds. Compute and justify the expected rate of return would a security earn if it had a 0.45 correlation with the market portfolio and a standard deviation of 55 percent.
Suppose you have $20,000 available to invest and the risk-free rate, as well as your borrowing rate, is 3%, and the expected return on the risky portfolio is 12%. The standard deviation of the risky portfolio is 18%. If you construct a complete portfolio with an expected return of 9%, the standard deviation of your portfolio is _______%.
You are constructing a portfolio of two assets, Asset A and Asset B. The expected returns of the assets are 12 percent and 15 percent, respectively. The standard deviations of the assets are 29 percent and 48 percent, respectively. The correlation between the two assets is .25 and the risk-free rate is 5 percent. What is the optimal Sharpe ratio in a portfolio of the two assets? What is the smallest expected loss for this portfolio over the coming year with a probability of 2.5 percent?
An investor can design a risky portfolio based on two stocks, A and B. The standard deviation of return on stock A is 20%, while the standard deviation on stock B is 15%. The correlation coefficient between the returns on A and B is 0%. The rate of return for stocks A and B is 20 and 10 respectively. The expected return on the minimum-variance portfolio is approximately _________.
An investor can design a risky portfolio based on two stocks, A and B. Stock A has an expected return of 18% and a standard deviation of return of 20%. Stock B has an expected return of 14% and a standard deviation of return of 5%. The correlation coefficient between the returns of A and B is .50. The risk-free rate of return is 10%. The proportion of the optimal risky portfolio that should be invested in stock A is
Security F has an expected return of 10 percent and a standard deviation of 43 percent per year. Security G has an expected return of 15 percent and a standard deviation of 62 percent per year. Required: (a) What is the expected return on a portfolio composed of 30 percent of Security F and 70 percent of Security G? (b) If the correlation between the returns of Security F and Security G is .25, what is the standard deviation of the portfolio described in part (a)?
You invest 80% of your portfolio in a risky portfolio that has an expected rate of return of 15% and a standard deviation of 21%, and the rest in T-bill with a 2% rate. What is the expected return of your portfolio? Enter your answer as a decimal number, rounded to three decimal places.
An investor can design a risky portfolio based on two stocks, A and B. The standard deviation of return on stock A is 24%, while the standard deviation on stock B is 14%. The correlation coefficient between the returns on A and B is .35. The expected return on stock A is 25%, while on stock B it is 11%. The proportion of the minimum-variance portfolio that would be invested in stock B is approximately
You form a complete portfolio by investing 30% of your portfolio in a risky portfolio that has an expected rate of return of 9% and a standard deviation of 19%, and the rest in T-bill with a 2% rate. What is the standard deviation of your complete portfolio? Enter your answer as a decimal number, rounded to three decimal places.
An investor can design a risky portfolio based on two stocks, A and B. Stock A has an expected return of 21% and a standard deviation of return of 39%. Stock B has an expected return of 14% and a standard deviation of return of 20%. The correlation coefficient between the returns of A and B is .4. The risk-free rate of return is 5%. The expected return on the optimal risky portfolio is approximately ____?____. Using the risk and return profile calculated in Q10 and Q11 (standard deviation of the optimal risky portfolio is 21.4%), what is the percentage weight that you need to invest in the optimal risky portfolio if you want your complete portfolio to achieve 12% return? ___?___
Suppose you have $2,000 to invest. The market portfolio has an expected return of 10.5 percent and a standard deviation of 16 percent. The risk-free rate is 3.75 percent. How much should you invest in the risk-free asset if you wish to have a 15 percent return on the portfolio?
Assume the riskless rate of interest is 2% per year, and the expected rate of return on the market portfolio is 8% per year. According to the CAPM, what is the efficient way for an investor to achieve an expected rate of return of 5% per year? If the standard deviation of the rate of return on the market portfolio is 4%, what is the standard deviation of the portfolio producing the 5% expected return? • Plot the CML and locate the foregoing portfolios on the same graph. • Plot the SML and locate the foregoing portfolios on the same graph.