Question

Youinvest1,000eurosintoTelefonica,whichhasastandarddeviationof18%,and invest 500 euros in the risk-free asset. What is the standard deviation of your portfolio?

Youinvest1,000eurosintoTelefonica,whichhasastandarddeviationof18%,and invest 500 euros in the risk-free asset. What is the standard deviation of your portfolio?

Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

The standard deciation of the risk free assets will be zero as the return is guaranteed. so, it doesn't carry any risk.

Total Amount invested = Amount invested in Telefonica + amount invested in risk free invested

= 1000 + 500

= 1500

Weightage of Telefonica = 1000 / 1500

= 2/3

In this case,

Standard Deviation of portfolio = (Weightage of telefonica ^2 * Standard Deviation of telefonica^2)^(1/2)

= ((2/3)^2 * 18^2)^(1/2)

= ( 4/9 * 324)^(1/2)

= (144)^(1/2)

= 12

So, the standard deviation of the portfolio is 12.

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
You invest $100 in a portfolio of stock JET and a risk-free asset with a return...
You invest $100 in a portfolio of stock JET and a risk-free asset with a return of 5%. JET has an expected return of 12% and a standard deviation of 10%. What is the percentage of your portfolio in the risk-free asset if your portfolio’s standard deviation is 9%? A. 30% B. 90% C. 50% D. 10%
You invest $100 in a portfolio of stock JET and a risk-free asset with a return...
You invest $100 in a portfolio of stock JET and a risk-free asset with a return of 5%. JET has an expected return of 12% and a standard deviation of 10%. What is the percentage of your portfolio in the risk-free asset if your portfolio’s standard deviation is 9%? A. 30% B. 90% C. 50% D. 10%
You can invest in a risk free asset that yields 3.1% and a market portfolio that...
You can invest in a risk free asset that yields 3.1% and a market portfolio that yields 9%. the market portfolio has a standard deviation of 8.5%. if you are willing to take on a risk level of 8.5% according to the capital market line, how much can you expect to return on your portfolio? Submit your answer as a percentage
Q.8      Consider the following assets: asset Expected return Standard deviation Beta Risk-free asset 0.06 0 0...
Q.8      Consider the following assets: asset Expected return Standard deviation Beta Risk-free asset 0.06 0 0 Market portfolio 0.22 0.20 1 Stock E 0.24 0.25 1.25 An investor wants to earn 24%, which one of the following strategies is optimal? Explain why suboptimal strategies should not be chosen. Borrow at the risk-free rate and invest in stock E because the risk –free asset will offset some of the risk of stock E. Borrow at the risk-free rate and invest in...
The risk-free rate is 2%. Portfolio A has an expected return of 10% and a standard...
The risk-free rate is 2%. Portfolio A has an expected return of 10% and a standard deviation of 18%. You currently have XA = 48% of your wealth invested in Portfolio A and the rest invested in the risk-free asset. You have decided to use Portfolio B (which has an expected return of 12% and a standard deviation of 21%). instead of Portfolio A but wish to have the same overall expected return as before. You will thus now allocate...
Consider the following information about a risky portfolio that you manage and a risk-free asset: E(rP)...
Consider the following information about a risky portfolio that you manage and a risk-free asset: E(rP) = 12%, σP = 22%, rf= 4%. a. Your client wants to invest a proportion of her total investment budget in your risky fund to provide an expected rate of return on her overall or complete portfolio equal to 7%. What proportion should she invest in the risky portfolio, P, and what proportion in the risk-free asset? (Do not round intermediate calculations. Round your...
A portfolio invests in a risk-free asset and the market portfolio has an expected return of...
A portfolio invests in a risk-free asset and the market portfolio has an expected return of 7% and a standard deviation of 10%. Suppose risk-free rate is 5%, and the standard deviation on the market portfolio is 22%. For simplicity, assume that correlation between risk-free asset and the market portfolio is zero and the risk-free asset has a zero standard deviation. According to the CAPM, which of the following statement is/are correct? a. This portfolio has invested roughly 54.55% in...
To maximize your utility what would be your allocation in the risk-free asset? risk-free asset with...
To maximize your utility what would be your allocation in the risk-free asset? risk-free asset with a return of 15%, Standard Deviation of 40%, and risk-free asset with risk-free= 5%, Pab= -1
5. The market portfolio expected return is 6% and its standard deviation is 15%. The risk-free...
5. The market portfolio expected return is 6% and its standard deviation is 15%. The risk-free rate is 0.5%. What are the expected return and the standard deviation of the portfolio that invests 50% in the risk-free asset and 50% in the market?
A portfolio that combines the risk-free asset and the market portfolio has an expected return of...
A portfolio that combines the risk-free asset and the market portfolio has an expected return of 7.4 percent and a standard deviation of 10.4 percent. The risk-free rate is 4.4 percent, and the expected return on the market portfolio is 12.4 percent. Assume the capital asset pricing model holds. What expected rate of return would a security earn if it had a .49 correlation with the market portfolio and a standard deviation of 55.4 percent?  Enter your answer as a percent...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT