Suppose that Treasury bills offer a return of about 6 percent and the expected market risk premium

Question:

Suppose that Treasury bills offer a return of about 6 percent and the expected market risk premium is 8.5 percent. The standard deviation of Treasury-bill returns is zero and the standard deviation of market returns is 20 percent. Use the formula for portfolio risk to calculate the standard deviation of portfolios with different proportions in Treasury bills and the market. (Note that the covariance of two rates of return must be zero when the standard deviation of one return is zero.) Graph the expected returns and standard deviations.

Portfolio
A portfolio is a grouping of financial assets such as stocks, bonds, commodities, currencies and cash equivalents, as well as their fund counterparts, including mutual, exchange-traded and closed funds. A portfolio can also consist of non-publicly...