Question
An investor has $1000,000 available Assume there are 2 investment opportunities available (i) optimal risky portfolio with with expected return of 12 % and standard
An investor has $1000,000 available Assume there are 2 investment opportunities available
(i) optimal risky portfolio with with expected return of 12 % and standard deviation (risk) of 20%.
(ii) Treasury bills (TB) paying 4% .
Assume investor can lend or borrow at 4%
Portfolio A is made up of $300,000 invested in TB and $700,000 in optimal risky portfolio
Portfolio B is made up of $-250,000 in TB (i.e. money borrowed at TB rate) and $1250,000 in optimal risky portfolio
REQUIRED:
a) Calculate the expected return and risk of portfolio A and B and draw capital market line (CML) showing the optimal risky portfolio along with portfolio A and B
b) Also explain how investor selects a portfolio on CML
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started
Financial Accounting For School Administrators Tools For School
Authors: Ronald E. Everett, Donald R. Johnson, Bernard W. Madden
3rd Edition
1610487710, 978-1610487719
