Question

An investor invests 70% of her wealth in a risky asset with an expected rate of return of 15% and a variance of 5%, and she puts 30% in a treasury bill that pays 5%. her portfolio's expected rate of return and standard deviation are

Answer 1

we are given with different rate of returns and variance from different investment mediums. To calculate the rate of return we multiply the investment allocation to the rate of return same as the standard deviation.

ROI = 0.7 * 0.15 + 0.3*0.05 = 0.12
SD = 0.7 * sq rt 0.05 = 0.157