You invest $1,900 in a complete portfolio. The complete portfolio is composed of a risky asset...
You invest $1,900 in a complete portfolio. The complete portfolio is composed of a risky asset with an expected rate of return of 13% and a standard deviation of 18% and a Treasury bill with a rate of return of 3%. __________ of your complete portfolio should be invested in the risky portfolio if you want your complete portfolio to have a standard deviation of 9%.
Homework Answers
Standard Deviation of Risky Asset = 18%
Standard Deviation of Risk Free Asset = 0%
Standard Deviation Formula = (Weight of Risky Asset * Standard
Deviation)2 + (Weight Of Risk Free Rate * Standard
Deviation)2 + 2* Weight 1* Weight 2* Covariance)
0.5
9% = Weight of Risky Asset * Standard Deviation
9% = Weight * 18%
Weight = 0.5 or 50%
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