You invest $100 in a risky asset with an expected rate of return of 0.11 and a standard deviation of 0.21 and a T-bill with a rate of return of 0.045. What percentages of your money must be invested in the risky asset and the risk-free asset, respectively, to form a portfolio with an expected return of 0.13?
Group of answer choices
a)57.75% and 42.25%
b)Cannot be determined.
c)67.67% and 33.33%
D)130.77% and –30.77%
e)–30.77% and 130.77%
Let weight be
Risky Asset = W1
T Bill = W2
Expected Return = W1*R1 + W2*R2
0.13 = W1*0.11+W2*0.045
and we also know that
W1+W2 = 1
as there is only two things in portfolio
Putting W2 = 1-W1
0.13 = W1*0.11+(1-W1)*0.045
W1 = 0.085/0.065 = 130.77% 0r 1.3077
W2 = 1-1.3077 = -30.77%
answer is D
You invest $100 in a risky asset with an expected rate of return of 0.11 and...
You invest $100 in a risky asset with an expected rate of return of 0.11 and a standard deviation of 0.21 and a T-bill with a rate of return of 0.045. What percentages of your money must be invested in the risk-free asset and the risky asset, respectively, to form a portfolio with a standard deviation of 0.08?
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