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Given that the risk-free rate is 5%, the expected return on the market portfolio is 20%, and the standard deviation of returns to the market
Given that the risk-free rate is 5%, the expected return on the market portfolio is 20%, and the standard deviation of returns to the market portfolio is 20%, answer the following questions:
- You have $100,000 to invest. How should you allocate your wealth between the risk free asset and the market portfolio in order to have a 15% expected return?
- What is the standard deviation of your portfolio in (a)?
- Now suppose that you want to have a portfolio, which pays 25% expected return. What is the weight in the risk free asset and in the market portfolio?
- What do these weights mean: What are you doing with the risk free asset and what are you doing with the market portfolio?
- What is the standard deviation of the portfolio in c?
- What is your conclusion about the effect of leverage on the risk of the portfolio?
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Commodity Trade And Finance
Authors: Michael Tamvakis
2nd Edition
041573245X, 978-0415732451
