Question 5

Consider historical data showing that the average annual rate of return on the S\&P 500 portfolio over the past 85 years has averaged roughly 8% more than the Treasury bill return and that the S\&P 500 standard deviation has been about 24% per year. Assume these values are representative of investors' expectations for future performance and that the current T-bill rate is 3%. Calculate the expected return and variance of portfolios invested in T-bills and the S\&P 500 index with weights as shown below. (Enter your answers as decimals rounded to 4 places. Leave no cells blank - be certain to enter "0" wherever required.)