Question
Suppose there are two tradable assets: the S&P 500 index, and a (riskless) T-Bill. The S&P 500 index has an expected return of 15% and
Suppose there are two tradable assets: the S&P 500 index, and a (riskless) T-Bill. The S&P 500 index has an expected return of 15% and a standard deviation of returns of 25%. The return of the T-Bill is 3%.
a) What is the slope of the Capital Allocation Line (CAL)? What is its economic interpretation?
b) What is the composition of a portfolio on the CAL that has an expected return of 20%? What is the standard deviation of this portfolio?
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Financial Markets And Institutions
Authors: Frederic S. Mishkin, Stanley Eakins
6th International Edition
0321552113, 9780321552112
