Suppose that a fund that tracks the S&P has mean E(RM) = 16% and standard deviation OM = 10%, and suppose that the T-bill rate Rf= 8%. Answer the following questions about efficient portfolios: a) What is the expected return and standard deviation of a portfolio that has 50% of its wealth in the risk-free asset and 50% in the S&P?
Suppose that a fund that tracks the S&P has mean E(RM) = 16% and standard deviation OM = 10%, and suppose that the T-bill rate Rf= 8%. Answer the following questions about efficient portfolios: a) What is the expected return and standard deviation of a portfolio that has 50% of its wealth in the risk-free asset and 50% in the S&P?
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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The expected return of a portfolio that is totally invested in the risk free asset is caclculated as: E(R) = WA * E(RA) Wf * E(RB) = 0 * 0.16 1.0 * 0.08 = 0 0.08 = 0.08 or 8% Therefore the expected return of a portfolio with risk free asset is 8% There is no standard deviation for the risk free asset.
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Transcribed Image Text:Suppose that a fund that tracks the S&P has mean E(RM) = 16% and standard deviation OM = 10%,
and suppose that the T-bill rate Re=8%. Answer the following questions about efficient portfolios:
a) What is the expected return and standard deviation of a portfolio that has 50% of its wealth in
the risk-free asset and 50% in the S&P?
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