For the following three questions, assume that: $\bar { R } _ { m } = 15 \%$ , $\bar { R } _ { A } = 13 \%$ , $R _ { F } = 5 \%$ , $\sigma _ { m } = 16 \%$ , the market portfolio is a tangency portfolio, and that A is an efficient portfolio on the Capital Market Line.
-What would be the expected return and standard deviation of a portfolio with equal proportions invested in Treasury bills and the market portfolio?

Question

Quizplus · Accepted Answer

The expected return of a portfolio with equal proportions invested in Treasury bills and the market portfolio is calculated as the average of the return on Treasury bills ($R_F = 5\%$) and the return on the market portfolio ($\bar{R}_m = 15\%$). Thus, the expected return is $(5\% + 15\%) / 2 = 10\%$. The standard deviation of a portfolio with equal proportions in Treasury bills (which have a standard deviation of 0% because they are risk-free) and the market portfolio ($\sigma_m = 16\%$) is half of the market portfolio's standard deviation, because only half of the portfolio is subject to market risk. Therefore, the standard deviation is $16\% / 2 = 8\%$.

For the Following Three Questions, Assume That Rˉm=15%\bar { R } _ { m } = 15 \%Rˉm​=15%

For the Following Three Questions, Assume That $\bar { R } _ { m } = 15 \%$