There are two risky assets, debt and equity. The expected return is 8% on the debt and 13% on the equity. The standard deviation is 12% for the debt and 20% for the equity. The correlation coefficient between the debt return and the equity return is 30%. a. If an investor invest 40% of her money in the debt and 60% in the equity, what is the expected return and the standard deviation on her portfolio? b. The risk-free rate is 4%. What are the weights of the debt and equity in the optimal portfolio? A. 50.8% B. 48.7% C. 40.4% D. 30.6%
There are two risky assets, debt and equity. The expected return is 8% on the debt and 13% on the equity. The standard deviation is 12% for the debt and 20% for the equity. The correlation coefficient between the debt return and the equity return is 30%. a. If an investor invest 40% of her money in the debt and 60% in the equity, what is the expected return and the standard deviation on her portfolio? b. The risk-free rate is 4%. What are the weights of the debt and equity in the optimal portfolio? A. 50.8% B. 48.7% C. 40.4% D. 30.6%
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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There are two risky assets, debt and equity. The expected return is 8% on the debt and 13% on the equity. The standard deviation is 12% for the debt and 20% for the equity. The correlation coefficient between the debt
a. If an investor invest 40% of her money in the debt and 60% in the equity, what is the expected return and the standard deviation on her portfolio?
b. The risk-free rate is 4%. What are the weights of the debt and equity in the optimal portfolio?
A. 50.8%
B. 48.7%
C. 40.4%
D. 30.6%
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