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You invest $1,000 in a complete portfolio. The complete portfolio is composed of a risky asset with an expected rate of return of 16% and
You invest $1,000 in a complete portfolio. The complete portfolio is composed of a risky asset with an expected rate of return of 16% and a standard deviation of 20% and a treasury bill with a rate of return of 5%.
- What is the proportion of your complete portfolio that should be invested in the risky portfolio if you want your complete portfolio to have a standard deviation of 9%?
- What are the proportions of the risky portfolio and risk free asset when a complete portfolio that has an expected value of $1,200 in one year?
- Draw the CAL of your portfolio on an expected return/standard deviation diagram.
- What is the slope of the capital allocation line (reward to volatility ratio) formed with the risky portfolio?
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