An investor develops a portfolio with 25% in a riskfree asset with a return of 6% and the rest in a risky asset with expected return of 9% and standard deviation of 6%. The standard deviation for the portfolio is

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Quizplus · Accepted Answer

The standard deviation of a portfolio that includes a risk-free asset and a risky asset is calculated based on the proportion of the portfolio invested in the risky asset and the standard deviation of the risky asset. Since the risk-free asset has a standard deviation of 0%, the portfolio's standard deviation is simply 75% (the proportion invested in the risky asset) of the risky asset's standard deviation, which is 6%. Therefore, 0.75 * 6% = 4.5%.

An Investor Develops a Portfolio with 25% in a Riskfree