Question

You are considering investing $2,600 in a complete portfolio. The complete portfolio is composed of Treasury bills that pay 4% and a risky portfolio, P, constructed with two risky securities, X and Y. The optimal weights of X and Y in P are 60% and 40% respectively. X has an expected rate of return of 16%, and Y has an expected rate of return of 11%. To form a complete portfolio with an expected rate of return of 8%, you should invest approximately __________ in the risky portfolio. This will mean you will also invest approximately __________ and __________ of your complete portfolio in security X and Y, respectively.

Answer 1

40% 24% 16%.......................

Answer 2

40% , 24% and 16%

Step-by-step explanation:

Total Amount invested = $2600

Portfolio is composed of :

Treasury bills paying 4%, Risky portfolio P, Two risky securities ( X and Y )

Optimal weights

X = 60% , Y = 40%

Expected rate of return

X = 16% , Y = 11%

To form a complete portfolio with an expected rate of return of 8%

Invest approximately 40% in risky portfolio

Invest approximately 24% and 16% of your complete portfolio in security X and Y

attached below is the detailed solution