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Harman [31]
2 years ago
8

An investor invests 70% of her wealth in a risky asset with an expected rate of return of 15% and a variance of 0.05 and she put

s 30% in a Treasury bill that pays 5%. Her portfolio's expected rate of return and standard deviation are __________ and __________ respectively.
Business
1 answer:
Mazyrski [523]2 years ago
6 0

Answer:

The portfolio's expected return is 12% and the standard deviation of the portfolio is 15.65%.

Explanation:

The expected rate of return of the portfolio is the weighted average of the individual stock returns that form up the portfolio. The formula for a two stock portfolio return is,

Portfolio return = wA * rA + wB * rB

Where,

  • w represents weight of the stocks in the portfolio
  • r represents the return of the stocks in the portfolio

Portfolio return = 0.7 * 0.15  +  0.3 * 0.05  =  0.12 or 12%

The portfolio which consists of a risky and a risk free asset has a standard deviation equal to the weight of the risky asset multiplied by its standard deviation. The risk free asset has no standard deviation. Thus, the formula for a portfolio standard deviation for such a portfolio is,

Standard deviation = weight of risky asset * standard deviation of risky asset

Standard deviation of portfolio = 0.7 * √0.05

Where standard deviation is the square root of variance.

Standard deviation of portfolio = 0.1565 or 15.65%

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What is the difference between reward management and compensation management
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3 years ago
A company issues 5%, 12-year bonds with a face amount of $70,000 for $64,070 on January 1, 2021. The market interest rate for bo
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Answer:

Date              Particular                                Debit         Credit

Jan 1, 2021    Cash                                      $64,700

                      Discount on bond payable  $5,930

                               Bond payable                                 $70,000

Jun 30,2021  Interest expense                   $3,882

                      Discount on bonds payable                  $2,132

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Workings:

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3 years ago
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