You invest $1,700 in a complete portfolio. The complete portfolio is composed of a risky asset with an expected rate of return of 18% and a standard deviation of 25% and a Treasury bill with a rate of return of 9%. __________ of your complete portfolio should be invested in the risky portfolio if you want your complete portfolio to have a standard deviation of 12%.
Standard Deviation of Portfolio = σp = 12%
Standard Deviation of Stock = σ = 18%
Standard Deviation of T-Bill = 0
Weightage of T-Bill = W1
Weightage of Stock = 1 - W1
Standard Deviation of Portfolio :
1 - W1 = 12% / 18% = 0.66667
W1 = 0.33333 = 33.33%
Amount Should Be Invested = Total Amount * Weightage = 17,000 * 0.33333 = 5,666.67
Ans : 33.33% of portfolio or 5,666.67 Amount should be invested in the risky portfolio.
Get Answers For Free
Most questions answered within 1 hours.