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

Question

Quizplus · Accepted Answer

The correct answer is A.The expected return of the portfolio is 0.086, which is a weighted average of the expected returns of the two assets. The variance of the portfolio is 0.242, which is a weighted average of the variances of the two assets, plus the covariance between the two assets. The covariance between the two assets is 0, since they are perfectly negatively correlated.

An Investor Invests 70 Percent of His Wealth in a Risky