Equity markets 14 - asset, respectively, to form a...

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Chapter 7 Capital Allocation Between the Risky Asset and the Risk-Free Asset 36.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 0.11? A) 53.8% and 46.2% B) 75% and 25% C) 62.5% and 37.5% D) 46.1% and 53.8% E) Cannot be determined. Answer: A Difficulty: Moderate Rationale: 11% = w 1 (17%) + (1 - w 1 )(4%); 11% = 17%w 1 + 4% - 4%w 1 ; 7% = 13%w 1 ; w 1 = 0.538; 1 - w 1 = 0.461; 0.538(17%) + 0.462(4%) = 11.0%. 37. What percentages of your money must be invested in the risk-free asset and the risky
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Unformatted text preview: asset, respectively, to form a portfolio with a standard deviation of 0.20? A) 30% and 70% B) 50% and 50% C) 60% and 40% D) 40% and 60% E) Cannot be determined. Answer: B Difficulty: Moderate Rationale: 0.20 = x(0.40); x = 50% in risky asset. 38. The slope of the Capital Allocation Line formed with the risky asset and the risk-free asset is equal to A) 0.325. B) 0.675. C) 0.912. D) 0.407. E) Cannot be determined. Answer: A Difficulty: Moderate Rationale: (0.17 - 0.04)/0.40 = 0.325. Bodie, Investments, Sixth Edition...
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