Question

Steve invests 30 percent of his wealth in a risky asset with an expected rate of return of 0.15 and a variance of 0.04 and 70 percent in a T-bill that pays 6 percent. His portfolio's expected return and standard deviation are __________ and __________, respectively.

Answer 1

Answer:

His portfolio's expected return and standard deviation are 8.7% and 6%, respectively.

Explanation:

portfolio's expected return = (amount invested in risky asset x expected rate of return) + (amount invested in T-bills x expected return) = (30% x 0.15) + (70% x 0.06) = 4.5% + 4.2% = 8.7%

standard deviation = amount invested in risky asset x √variance = 30% x √0.04 = 30% x 0.2 = 6%