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8. Assume that you invest equal amounts in a portfolio with an expected return of 16...

8. Assume that you invest equal amounts in a portfolio with an expected return of 16 percent and a standard deviation of returns of 18 percent and a risk-free asset with an interest rate of 4 percent. Calculate the standard deviation of the returns on the resulting portfolio

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Answer #1

The standard deviation of a risk free asset is zero. The standard deviation for two stock portfolio is given in the image. The correlation coefficient between risk free asset and the risky asset is zero.

The standard deviation of the portfolio comes out as 9%.

Comment in case of any query. Thumbs up would be highly appreciated. Thanks.

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