You are considering investing $1,000 in a complete portfolio. The complete portfolio is composed of treasury bills that pay 5% and a risky portfolio, P, constructed with 2 risky securities X and Y. The optimal weights of X and Y in P are 60% and 40% respectively. X has an expected rate of return of 14% and Y has an expected rate of return of 10%.
-The dollar values of your positions in X,Y,and treasury bills would be _________,__________ and __________ respectively if you decide to hold a complete portfolio that has an expected return of 8%.
A) $162, $595, $243
B) $243, $162, $595
C) $595, $162, $243
D) $595, $243, $162

Question

Quizplus · Accepted Answer

To achieve an 8% expected return, allocate $405 to the risky portfolio (40.5% of $1,000) and $595 to treasury bills (59.5% of $1,000). In the risky portfolio, allocate $243 to X (60% of $405) and $162 to Y (40% of $405).

You Are Considering Investing $1,000 in a Complete Portfolio