Suppose that the risk-free rate is 6 percent and the expected return of the market portfolio is 14 percent, with a standard deviation of 24 percent. The investor wants to create a portfolio with a standard deviation of 20 percent. Calculate the portfolio’s expected return.
Standard deviation of market portfolio = 24%
Let weight of market portfolio be w,
So,
0.20 = 0.24(w)
w = 83.33%
Expected return = 0.8333(0.14) + (1 - 0.8333)(0.06)
Expected return = 12.67%
Suppose that the risk-free rate is 6 percent and the expected return of the market portfolio...
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