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Every investor in the capital asset pricing model owns a combination of the market portfolio and...

  • Every investor in the capital asset pricing model owns a combination of the market portfolio and a riskless asset. Assume that the standard deviation of the market portfolio is 30% and that the expected return on the portfolio is 15%. What proportion of the following investors wealth would you suggest investing in the market portfolio and what proportion in the riskless asset? (The riskless asset has an expected return of 5%)
    • A) An investor who desires a portfolio with no standard deviation
    • B) An investor who desires a portfolio with a standard deviation of 15%
    • C) An investor who desires a portfolio with a standard deviation of 30%
    • D) An investor who desires a portfolio with a standard deviation of 45%
    • E) An investor who desires a portfolio with an expected return of 12%
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Answer #1

A) An investor who desires a portfolio with no standard deviation

proportion in the market portfolio=0%/15%=0%

proportion in the riskless asset=1-0%=100%

B) An investor who desires a portfolio with a standard deviation of 15%

proportion in the market portfolio=15%/15%=100%

proportion in the riskless asset=1-100%=0%

C) An investor who desires a portfolio with a standard deviation of 30%

proportion in the market portfolio=30%/15%=200%

proportion in the riskless asset=1-200%=-100%

D) An investor who desires a portfolio with a standard deviation of 45%

proportion in the market portfolio=45%/15%=300%

proportion in the riskless asset=1-300%=-200%

E) An investor who desires a portfolio with an expected return of 12%

proportion in the market portfolio=12%/15%=80%

proportion in the riskless asset=1-80%=20%

the above is answer..

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