Question

You are considering investing $1,000 in a T-bill that pays 0.05 and a risky portfolio, P, constructed with two risky securities, X and Y. The weights of X and Y in P are 0.60 and 0.40, respectively. X has an expected rate of return of 0.14 and variance of 0.01, and Y has an expected rate of return of 0.10 and a variance of 0.0081.

If you want to form a portfolio with an expected rate of return of 0.10, what percentages of your money must you invest in the T-bill, X, and Y, respectively, if you keep X and Y in the same proportions to each other as in portfolio P?

Answer 1

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03:34 C w ENG 99+ 31-07-2020 30 Х X T1076 . R S T U V W х Y АА N 1055 1056 PORTFOLIO P EXPECTED RETURN ON PORTFOLIO PE = W(X)*R(X) + W(Y)*R(Y) = 60%*14% + 40%*10% = 12.40% NOW 1057 1058 1059 1060 1061 1062 1063 1064 1065 1066 1067 1068 1069 1070 1071 1072 1073 1074 1075 1076 1077 1078 EXPECTED RETURN ON PORTFOLIO C = 10% 10% = W(P)*R(P) + W(RF)*R(RF) 10% = W*(12.40%) + (1-W)*5% 10% = W*(12.40%) + 5% - (W)*5% 5% = 7.40%(w) W = 67.57% INVESTMENT IN PORTFOLIO P 1-W = 32.43% INVESTMENT IN RISK FREE ASSET ANSWER Х Y 405 [1000 X 60% X 67.57%] 270 100 X 30% X 67. 324 (1000 X 32.43%] RISK FREE ASSET KE CAPM UTILITY, SHARPE, beta CoNvexity DGM beta VAR port future INDEX WACC HEDGE INTL CAP BUD Sheet11 SANDI ... +