Question

g has an expected return objective of 11%. To meet this client's return objective, William can create a portfolio with the weight of the market portfolio of:

Answer 1

Answer: c. 62.5%

Step-by-step explanation:

I could not find a question with your exact figures but I found a similar one that can be used for reference.

Expected return is a weighted average of the expected returns of the constituent assets.

To bring about a return of 8%, William will have to allocate more money to the market portfolio because the risk free asset has a return of only 4%.

Assume therefore that(from the options) 62.5% went to the market portfolio and the rest went to the risk free asset.

Expected return is;

= (62.5% * 12%) + ( (1 - 62.5%) * 4%)

= 9%

The appropriate weight for the market portfolio is therefore 62.5%.