Problem 16 how do you find the standard deviation? How do you do problems 17 and

Question

Problem 16 how do you find the standard deviation? How do you do problems 17 and 18?

Use the following information to answer questions 25 through 27. ReturnStandard Risk Free Risky Asset 14% 12.6% Deviation 10% 24.3% 16, What is the return and standard deviation of a portfolio with 30% in the risk free asset 17, What is the return and standard deviation of a portfolio with 60% in the risk free asset 18, what is the return and standard deviation of a portfolio with 135% in the risky asset? and 70% in the risky asset? and 40% in the risky asset? Use the following information to answer questions 19 through 21. Return Standard Corr(D,E) Deviation

Explanation / Answer

16.

Expected return of portfolio = (12.60% × 70%) + (30% × 4%)

= 8.82% + 1.20%

= 10.20%

Expected return of portfolio is 10.20%.

Standard deviation of portfolio = (24.30% × 70%) + (30% × 0%)

= 17.01% + 0%

= 17.01%

Standard deviation of portfolio is 17.01%.

17.

Expected return of portfolio = (12.60% × 60%) + (40% × 4%)

= 7.56% + 1.60%

= 9.16%

Expected return of portfolio is 9.16%.

Standard deviation of portfolio = (24.30% × 60%) + (40% × 0%)

= 14.58% + 0%

= 14.58%

Standard deviation of portfolio is 14.58%.

18.

sum of total weight of portfolio must be 100%. if he invest 135% in Risky assets, it mean he must borrow 35% at risk free rate and invest in risky assets. So, sum of total weight = 135% - 35% = 100%.

Expected return of portfolio = (12.60% × 135%) + (-35% × 4%)

= 17.01% - 1.40%

= 15.61%

Expected return of portfolio is 15.61%.

Standard deviation of portfolio = (24.30% × 135%) + (-35% × 0%)

= 32.805% + 0%

= 32.805%

Standard deviation of portfolio is 32.805%.

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