An investor invests 30% of his funds in risk free asset and the remaining 70% of funds in an index fund that represents the market. The risk-free return is 8%. The index fund is expected to give a return of 21%. Using the CAPM Model. a. What is the expected return from the portfolio of the investor? The standard deviation of returns from the index funds is 9.80. What is the Standard Deviation of the portfolio return? b. If the investor withdraws his investment in the risk free security and invests the same also in the index fund, what is the expected return? What is the portfolio risk?

An investor invests 30% of his funds in risk free asset and the remaining 70% of funds in an index fund that represents the market. The risk-free return is 8%. The index fund is expected to give a return of 21%. Using the CAPM Model. a. What is the expected return from the portfolio of the investor? The standard deviation of returns from the index funds is 9.80. What is the Standard Deviation of the portfolio return? b. If the investor withdraws his investment in the risk free security and invests the same also in the index fund, what is the expected return? What is the portfolio risk?

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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