The standard deviation of a market portfolio is 25%, its expected return is 17% and the risk-free asset is 11%. What return can an investor expect to earn on investment of 50% of his wealth in the risk-free asset and 50% of his wealth in the market portfolio? What is the portfolio risk?
Added by John A.
Step 1
First, we need to calculate the expected return of the portfolio. We can do this using the weighted average of the expected returns of the risk-free asset and the market portfolio. Expected return of the portfolio = (Weight of risk-free asset * Expected return of Show more…
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