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

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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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