Question

you invest in a risky asset with an expected rate of return of 0.17 and a standard deviation of 0.,40 and a T-bill with a rate of return of 0.04. 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 0.11?

a. 53.8% and 46.2%

b.75% and 25%

c.62.5% and 37.5%

d.46.2% and 53.8%

Answer 1

Let w be weight in risky asset,

0.11 = w(0.17) + (1 - w)(0.04)

0.11 = 0.17w + 0.04 - 0.04w

w = 0.5385

53.8% and 46.2%