You invest $10,000 in a complete portfolio.The complete portfolio is composed of a risky asset with an expected rate of return of 15% and a standard deviation of 21% and a treasury bill with a rate of return of 5%.How much money should be invested in the risky asset to form a portfolio with an expected return of 11%?
A) $6,000
B) $4,000
C) $7,000
D) $3,000

Question

Quizplus · Accepted Answer

To achieve an expected return of 11%, you need to solve for the weight of the risky asset (w) in the portfolio: 11% = w * 15% + (1-w) * 5%. Solving for w gives w = 0.6. Therefore, 60% of $10,000 should be invested in the risky asset, which is $6,000.

You Invest $10,000 in a Complete Portfolio