An investor invests 30% of his wealth in a risky asset with an expected rate of return of 0.11 and a variance of 0.12 and 70% in a T-bill that pays 3%.His portfolio's expected return and standard deviation are __________ and __________, respectively.

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Quizplus · Accepted Answer

The expected return of the portfolio is calculated as the weighted sum of the expected returns of the individual assets, which is (0.30 * 0.11) + (0.70 * 0.03) = 0.033 + 0.021 = 0.054. The standard deviation of the portfolio is only affected by the risky asset since T-bills are risk-free, so it's the standard deviation of the risky asset times the weight of the risky asset in the portfolio, which is sqrt(0.12) * 0.30 = 0.3464 * 0.30 = 0.104.

An Investor Invests 30% of His Wealth in a Risky