Asked by Kring Ronquillo on Jun 02, 2024
Verified
You invest $1,000 in a complete portfolio. The complete portfolio is composed of a risky asset with an expected rate of return of 16% and a standard deviation of 20% and a Treasury bill with a rate of return of 6%. A portfolio that has an expected value in 1 year of $1,100 could be formed if you ________.
A) place 40% of your money in the risky portfolio and the rest in the risk-free asset
B) place 55% of your money in the risky portfolio and the rest in the risk-free asset
C) place 60% of your money in the risky portfolio and the rest in the risk-free asset
D) place 75% of your money in the risky portfolio and the rest in the risk-free asset
Expected Value
The calculated average result of all possible outcomes of a particular investment or decision, considering both the probability and the impact of each outcome.
Risky Portfolio
An investment portfolio that contains assets with a higher degree of volatility and potential for loss, aiming for higher returns.
- Arrange and scrutinize complete portfolios, merging risk-free and risky assets to enhance utility.
Verified Answer
GC
Gonzalo CelestinoJun 04, 2024
Final Answer :
A
Explanation :
$1,100 = y × (1,000)(1.16) + (1 - y)1,000(1.06), so y =.4
Learning Objectives
- Arrange and scrutinize complete portfolios, merging risk-free and risky assets to enhance utility.