According to the CAPM, to achieve an expected rate of return of 0.11, the efficient investment strategy is to invest in a portfolio with a standard deviation of 0.075.
According to the Capital Asset Pricing Model (CAPM), the efficient way to invest with an expected rate of return of 0.11 is to invest in a portfolio that lies on the Capital Market Line (CML). The CML is formed by combining the risk-free rate of interest and the market portfolio. By using the formula for the CML, we can calculate the required portfolio standard deviation to achieve the desired rate of return.
The formula for the CML is: Expected Return = Risk-free Rate + (Market Return - Risk-free Rate) x (Portfolio Standard Deviation / Market Standard Deviation). By rearranging the formula, we can solve for the required portfolio standard deviation:
Portfolio Standard Deviation = (Expected Return - Risk-free Rate) x (Market Standard Deviation / (Market Return - Risk-free Rate)).
Substituting the given values into the formula, we find:
Portfolio Standard Deviation = (0.11 - 0.03) x (0.12 / (0.14 - 0.03)) = 0.075.
Therefore, the efficient investment strategy with an expected rate of return of 0.11 is to invest in a portfolio with a standard deviation of 0.075.