There are two risky assets, debt and equity. The expected return is 8% on the debt and 13% on the equity. The standard deviation is 12% for the debt and 20% for the equity. The correlation coefficient between the debt return and the equity return is 30%. a. If an investor invest 40% of her money in the debt and 60% in the equity, what is the expected return and the standard deviation on her portfolio? b. The risk-free rate is 4%. What are the weights of the debt and equity in the optimal portfolio? A. 50.8% B. 48.7% C. 40.4% D. 30.6%

There are two risky assets, debt and equity. The expected return is 8% on the debt and 13% on the equity. The standard deviation is 12% for the debt and 20% for the equity. The correlation coefficient between the debt return and the equity return is 30%. a. If an investor invest 40% of her money in the debt and 60% in the equity, what is the expected return and the standard deviation on her portfolio? b. The risk-free rate is 4%. What are the weights of the debt and equity in the optimal portfolio? A. 50.8% B. 48.7% C. 40.4% D. 30.6%

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter8: Analysis Of Risk And Return

Section: Chapter Questions

Problem 12P

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