Asked by Addie Maxwell on Jul 02, 2024
You invest $100 in a risky asset with an expected rate of return of 0.11 and a standard deviation of 0.21 and a T-bill with a rate of return of 0.045. A portfolio that has an expected outcome of $114 is formed by
A) investing $100 in the risky asset.
B) investing $80 in the risky asset and $20 in the risk-free asset.
C) borrowing $46 at the risk-free rate and investing the total amount $146 in the risky asset.
D) investing $43 in the risky asset and $57 in the risk-free asset.
E) Such a portfolio cannot be formed.
Standard Deviation
A measure of the amount of variation or dispersion of a set of values, indicating how much the individual data points differ from the mean.
Expected Rate
The anticipated return on an investment, factoring in the probability of various outcomes, including risks and rewards.
T-bill
Short for Treasury bill, a short-term government security issued at a discount from the par value and pays no interest before maturity, but is redeemed at its face value.
- Comprehend the formation and expected outcome of portfolios containing risky and risk-free assets.
Learning Objectives
- Comprehend the formation and expected outcome of portfolios containing risky and risk-free assets.