Question

Step 1

Please see the white board for the expression for standard deviation of a portfolio. The symbols have their usual meaning in the world of investment management.

Step 2

Part (a)

A riskfree portfolio will hve its standard deviation as 0.

Hence, we have to solve the following two equations:

w_{1} + w_{2} = 1; w_{1}σ_{1 }– w_{2}σ_{2} = w_{1} x 25% - w_{2} x 75% = 0

Step 3

Hence, w1 = 3w2

Hence, 4w2 = 1; Hence, w2 = ¼ = 0.25 and w1 = 3 x ¼ = 0.75

Hence, the expected rate of return of the risk free portf...

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