Answered step by step
Verified Expert Solution
Question
1 Approved Answer
The risk-free rate is 2%. Portfolio A has an expected return of 10% and a standard deviation of 18%. You currently have XA = 31%
The risk-free rate is 2%. Portfolio A has an expected return of 10% and a standard deviation of 18%. You currently have XA = 31% of your wealth invested in Portfolio A and the rest invested in the risk-free asset. You have decided to use Portfolio B (which has an expected return of 12% and a standard deviation of 26%). instead of Portfolio A but wish to have the same overall expected return as before. You will thus now allocate XB% of your total wealth to Portfolio B (note XB may differ from XA) and the rest to the risk-free asset. What is the overall standard deviation you will face in your complete portfolio (considering you will invest in both Portfolio B and the risk-free)? Enter the standard deviation in decimal form and rounded accurately to four decimal places (e.g., 20.456% should be entered as 0.2046 and not any other way)
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