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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. 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 0.08?

Respuesta :

Answer:

62.5% and 37.5%.

Explanation:

The computation of percentage is shown below:-

Let us assume the X be the weight in Risky Asset

And, 1 - X is the weight in Risk Free asset.

SO,

Particulars         Rate          Weight         Weighted rate

Stock               11.00%            X                  0.11X

Risk free assets 3%            1 - X              0.03 - 0.03X

So, the equation will be

0.03 + 0.08 X = 0.08

0.08 X = 0.08 - 0.03

0.08 X = 0.05

X = 0.05 ÷ 0.08

= 0.625

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