Question

1. Suppose you have a portfolio that is 70% in the risk-free
asset and 30% in a stock. The stock has a standard deviation of
0.30 (i.e., 30%). What is the standard deviation of the portfolio?
A. 0.30 (i.e., 30%) B. 0.09 (i.e., 9%) C. 0.21 (i.e., 21%) D.
0

2. You have a total of $100,000 to invest in a portfolio of assets.
The portfolio is composed of a risky asset with an expected rate of
return of 15% and a standard deviation of 21% and a Treasury bill
with a rate of return of 5%. How much money should be invested in
the risky asset to form a portfolio with an expected return of
11%?

A.

$60,000

B.

$40,000

C.

$70,000

D.

$30,000

Answer #1

1.

Standard deviation of stock = 30%

Standard deviation of risk free assets = 0%

Standard deviation of portfolio = (70% × 30%) + (30% × 0)

= 21% + 0%

= 21%

Standard deviation of portfolio is 21%.

2.

Suppose W percent invest in risky assets and (1 - W) percent in risk free assets.

11% = 15% × W + 5% × (1 - W)

11% = 15% × W + 5% - 5% × W

11% = 5% + 10% × W

W = 60%

So, value invested in risky assets = $100,000 × 60%

= $60,000

Value invested in risky assets is $60,000.

Option (A) is correct answer.

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