Question

Thank you so much

You currently have $150,000 invested in a portfolio that has an expected return of 11% and a volatility of 9%. Suppose the risk-free rate is 4%, and there is another portfolio has an expected return of 16% and a volatility of 12%. a. What portfolio has a higher expected return than your portfolio but with the same volatility? b. What portfolio has a lower volatility than your portfolio but with the same expected return? a. What portfolio has a higher expected return than your portfolio but with the same volatility? (Round all intermediate values to five decimal places as needed.) in the The portfolio should be composed of $ in the other portfolio, and the remaining $ risk-free investment. (Round to the nearest dollar.)

Answer 1

A) Same volatality

The volatility in risk free return is 1 so to obtain a volatility level of 9 the portfolio should be distributed in following basis

x = weights to be assigned

expected volatlity = volatility of rf (1-x) + volatality of protfolio b

9=1-x+12x

8=11x

x= 8/11= .72 x

therefore weight of portoflio in portfolio b is .72 *150000 = 108000 and remaining in rf = 42000

b same returns

x = weights to be assigned

expected Returns = returns of rf (1-x) + returns of protfolio b

11 = 4(1-x) + 16X

11= 4-4x+16x

7=12x

x= 7/12 = .5833

so weightage of portfolio b is .5833* 150000= 87500 and remaining in risk free is 62500