Your client, Bo Regard, holds a complete portfolio that consists of a portfolio of risky assets (P) and T-Bills.The information below refers to these assets. What is the equation of Bo's capital allocation line?

Question

Your client, Bo Regard, holds a complete portfolio that consists of a portfolio of risky assets (P) and T-Bills.The information below refers to these assets.  What is the equation of Bo's capital allocation line?

Quizplus · Accepted Answer

The equation of the capital allocation line is E(r) = rf + Sharpe ratio x standard deviation, where rf is the risk-free rate and the Sharpe ratio is the excess return over the risk-free rate divided by the standard deviation. In this case, the portfolio of risky assets is P and the T-bills are the risk-free asset. Using the information given, we can calculate the expected return and standard deviation of portfolio P. Then, we can calculate the Sharpe ratio as (E(rP) - rf) / sigmaP. Plugging these values into the equation, we get: E(r_C) = 3.6 + 1.167 F1F1F1S1F1F1F10 Standard Deviation of C as the equation of Bo's capital allocation line.

Your Client, Bo Regard, Holds a Complete Portfolio That Consists