Question

Calculate the missing values for the following four efficient portfolios. The expected return on the market...


Calculate the missing values for the following four efficient portfolios. The expected return on the market is 7
percent, with a standard deviation of 3 percent, and the risk-free rate is 2 percent.
Portfolio Weight in Risk-free Asset Expected Portfolio Return Portfolio Standard Deviation
A 15% 6.25%
B 30% 5.50%
C 45% 4.75%
D 60% 4.00%
E 75% 3.25%
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Homework Answers

Answer #1

Standard Deviation on Risky Assets = 3%
Standard Deviation of Risk-free Asset = 0%

Portfolio Standard Deviation = Weight of Risky Assets * Standard Deviation on Risky Assets
Portfolio Standard Deviation = (1 - Weight of Risk-free Asset) * Standard Deviation on Risky Assets

Portfolio A:

Portfolio Standard Deviation = (1 - 0.15) * 7%
Portfolio Standard Deviation = 5.95%

Portfolio B:

Portfolio Standard Deviation = (1 - 0.30) * 7%
Portfolio Standard Deviation = 4.90%

Portfolio C:

Portfolio Standard Deviation = (1 - 0.45) * 7%
Portfolio Standard Deviation = 3.85%

Portfolio D:

Portfolio Standard Deviation = (1 - 0.60) * 7%
Portfolio Standard Deviation = 2.80%

Portfolio E:

Portfolio Standard Deviation = (1 - 0.75) * 7%
Portfolio Standard Deviation = 1.75%

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