Question

You invest $100 in a risky asset with an expected rate of return of 0.12 and a standard deviation of 0.15 and a T-bill with a rate of return of 0.05. What percentages of your money must be invested in the risky asset and the risk-free asset, respectively, to form a portfolio with an expected return of 0.09?

Answer 1

X is the percentage invested in risky assets and because the remaining is invested in a T-bill, x-1 is the percentage invested in T-bills

0.12x+0.05(1-x)=0.09

0.12x+0.05-0.05x=0.09

0.07x=0.04

x=0.04/0/07

x=0.57=57%

1-x=0.43=43%

Percentage of portfolio invested in T bill= 43%

Percentage of portfolio invested in Risky= 57%

Step-by-step explanation: