Question
Given the following information calculate the standard deviation of returns of a portfolio that combines government...
Given the following information calculate the standard deviation of returns of a portfolio that combines government bonds with the market portfolio.
Rm = .11
Rf = .05
Standard Deviation of market return = 0.12
Enter your answer as a decimal accurate to three decimal places.
Proportion invested in Rm = 0.6
Homework Answers
Answer #1
If an investor invests in risk free asset then risk will be zero.
Therefore,
Risk on government bonds (
f)
= 0
Wm = 0.60
Wf = 0.40
Standard deviation of return of portfolio (p)
= 
= 
= 
= 
= 7.20 or 0.072
Hence, standard deviation of return of a portfolio (p)
is 0.072.
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