Equity markets 12 - return of 0.11 and a variance of 0.12...

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Chapter 7 Capital Allocation Between the Risky Asset and the Risk-Free Asset 31.An investor invests 40 percent of his wealth in a risky asset with an expected rate of return of 0.18 and a variance of 0.10 and 60 percent in a T-bill that pays 4 percent. His portfolio's expected return and standard deviation are __________ and __________, respectively. A) 0.114; 0.112 B) 0.087; 0.063 C) 0.096; 0.126 D) 0.087; 0.144 E) none of the above Answer: C Difficulty: Moderate Rationale: E(r P ) = 0.4(18%) + 0.6(4%) = 9.6%; s P = 0.4(0.10)1/2 = 12.6%. 32. An investor invests 70 percent of his wealth in a risky asset with an expected rate of
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Unformatted text preview: return of 0.11 and a variance of 0.12 and 30 percent in a T-bill that pays 3 percent. His portfolio's expected return and standard deviation are __________ and __________, respectively. A) 0.086; 0.242 B) 0.087; 0.267 C) 0.295; 0.123 D) 0.087; 0.182 E) none of the above Answer: A Difficulty: Moderate Rationale: E(r P ) = 0.7(11%) + 0.3(3%) = 8.6%; s P = 0.7(0.12)1/2 = 24.2%. Use the following to answer questions 33-35: You invest $100 in a risky asset with an expected rate of return of 0.11 and a standard deviation of 0.20 and a T-bill with a rate of return of 0.03. Bodie, Investments, Sixth Edition...
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