### Optimal Risky Portfolio Calculation**Question:**You compute the optimal risky portfolio to have the expected return of 12% and standard deviation of 20%. The risk-free rate is 4%. What will be the standard deviation of the complete portfolio of the risk-free asset and the optimal risk portfolio for a risk-averse investor with risk aversion index A=6.**Options:**- 1.11- 3.33- 5.67- 6.67- None of the above**Explanation:**To solve this problem, you'll need to use the following formula for the standard deviation of the complete portfolio when combining a risk-free asset and the risky portfolio:\[ \sigma_C = y \cdot \sigma_P \]Where:- \( \sigma_C \) is the standard deviation of the complete portfolio.- \( y \) is the proportion of the risky asset in the complete portfolio.- \( \sigma_P \) is the standard deviation of the risky portfolio.Step-by-step, you typically first calculate the proportion \( y \) based on the risk aversion index \( A \), and the expected excess return over the risk-free rate.For educational purposes, detailed calculations and explanations can follow up, ensuring students understand every step involved in achieving the correct answer.

Expected return E(r) = 12% Risk free rate (Rf) = 4% Standard Deviation (SD) = 20% Risk Aversion (A)…

You compute the optimal risky portfolio to have the expected return of 12% and standard deviation of 20%. The risk free rate is 4%. VWhat will be the standard deviation of the complete portfolio of risk free asset and the optimal risk portfolio, for a risk averse investor with risk aversion index A=6. O 1.11 O 3.33

You compute the optimal risky portfolio to have the expected return of 12% and standard deviation of 20%. The risk free rate is 4%. VWhat will be the standard deviation of the complete portfolio of risk free asset and the optimal risk portfolio, for a risk averse investor with risk aversion index A=6. O 1.11 O 3.33

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter8: Analysis Of Risk And Return

Section: Chapter Questions

Problem 13QTD

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