What are the expected return and standard deviation for a portfolio that has $2,000 invested in a risk-free asset with 5.25 percent rate of return,and $8,000 invested in a risky asset with a 21 percent rate of return and a 35 percent standard deviation?
A) Expected return = 17.85%; standard deviation = 28.00%
B) Expected return = 28.00%; standard deviation = 17.85%
C) Expected return = 7.00%; standard deviation = 8.40%
D) Expected return = 8.40%; standard deviation = 7.00%

Question

Quizplus · Accepted Answer

Weight in risky asset,W = $8000/($2000+8000)= 0.8 Portfolio expected return,E(R_P)= 5.25%*0.2+21%+0.8 = 17.85% Portfolio standard deviation,σ_P = 35%*0.8 = 28%

What Are the Expected Return and Standard Deviation for a Portfolio