Question
The risk free rate is 6 per cent and the expected rate of return on the market is 14 per cent with a standard deviation
| The risk free rate is 6 per cent and the expected rate of return on the market is 14 per cent with a standard deviation of 20 per cent. Assume the capital market line can explain the expected return on efficient portfolios. | |
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| a) | An efficient portfolio is made up of 0.7 of the market portfolioand 0.3 of the risk free asset. Determine its expected rate of return and its standard deviation. |
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| (2 marks) |
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| b) | An investor would like to invest in an efficient portfolio that promises an expected rate of return of 18 per cent. Determine the composition of the portfolio and its risk. |
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| (2 marks) |
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