Question

security	beta	Standard deviation	Expected return
S&P 500	1.0	20%	10%
Risk free security	0	0	4%
Stock d	( )	30%	13%
Stock e	0.8	15%	( )
Stock f	1.2	25%	( )

5) A complete portfolio of $1000 is composed of the risk free security and a risky portfolio, P, constructed with 2 risky securities, X and Y. The optimal weights of X and Y are 80% and 20% respectively. Given the risk free rate of 4%. X has an expected return of 10%, and Y has an expected return 12%

a) find expected return on the risky portfolio, P

b) To form a complete portfolio with an expected return 7.2%, how much should you invest in the risk free security, securities X and Y, respectively?

Answer 1