For your retirement fund, you have decided to place 40% of your contributions into a riskfree asset that pays 4% interest per annum, and the remaining 60% of your contributions will be placed in an available stock mutual fund that approximates the holdings of the mythical market portfolio.You expect this fund to provide an average return of r_P=9%, but will expose you to risk, measured in terms of an estimated standard deviation of $\sigma$ _P=20%.What is your estimate of the expected return and standard deviation of your complete portfolio, r_C and $\sigma$ _C, respectively?
$\begin{array}{ll}&1' \mathrm{P} & \sigma_{\mathrm{P}} \\a.&6 \% & 5.9 \% \\b.&6 \% & 20.0 \% \\c.&7 \% & 12.0 \% \\d.&7 \% & 20.0 \%\end{array}$

Question

For your retirement fund, you have decided to place 40% of your contributions into a riskfree asset that pays 4% interest per annum, and the remaining 60% of your contributions will be placed in an available stock mutual fund that approximates the holdings of the mythical market portfolio.You expect this fund to provide an average return of r_P=9%, but will expose you to risk, measured in terms of an estimated standard deviation of

\sigma

_P=20%.What is your estimate of the expected return and standard deviation of your complete portfolio, r_C and

\sigma

_C, respectively?

\begin{array}{ll}&1' \mathrm{P} & \sigma_{\mathrm{P}} \\a.&6 \% & 5.9 \% \\b.&6 \% & 20.0 \% \\c.&7 \% & 12.0 \% \\d.&7 \% & 20.0 \%\end{array}

Quizplus · Accepted Answer

The Answer of For your retirement fund, you have decided to place 40% of your contributions into a riskfree asset that pays 4% interest per annum, and the remaining 60% of your contributions will be placed in an available stock mutual fund that approximates the holdings of the mythical market portfolio.You expect this fund to provide an average return of r_P=9%, but will expose you to risk, measured in terms of an estimated standard deviation of $\sigma$_P=20%.What is your estimate of the expected return and standard deviation of your complete portfolio, r_C and $\sigma$_C, respectively? $\begin{array}{ll} &1' \mathrm{P} & \sigma_{\mathrm{P}} \ a.&6 \% & 5.9 \% \ b.&6 \% & 20.0 \% \ c.&7 \% & 12.0 \% \ d.&7 \% & 20.0 \% \end{array}$

For Your Retirement Fund, You Have Decided to Place 40 σ\sigmaσ

For Your Retirement Fund, You Have Decided to Place 40 $\sigma$