You live in an economy with the risk-free rate of 2% p.a. and the expected return on the market portfolio equal to 10% p.a. and volatility of 20% p.a. You are approached by a client whose target expected return equals 8% p.a. What is the weight of the market in the portfolio meeting that return target?
Select one: a. 0.50 b. 0.75 c. 0.25 d. 0.10
risk free rate rf = 2%
expected return on market rm = 8%
Let weight of market potfolio be w
then weight of risk free asset = 1-w
& target return is 8% which is weighted average return of risk free asset and market portfolio
So, 8 = (1-w)*2 + w*10
So, w = 0.75
So option b is correct
You live in an economy with the risk-free rate of 2% p.a. and the expected return...
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