An investor has a portfolio with 60% in a riskfree asset with a return of 5% and the rest in a risky asset with an expected return of 12% and a standard deviation of 10%. Respectively, the expected return and standard deviation of the portfolio are

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The expected return of the portfolio is calculated as the weighted average of the returns of the individual assets. Thus, the expected return = 0.6*5% + 0.4*12% = 3% + 4.8% = 7.8%. The standard deviation of a portfolio that includes a risk-free asset is proportional to the standard deviation of the risky asset, scaled by the proportion of the portfolio invested in the risky asset. Therefore, the standard deviation of the portfolio = 0.4*10% = 4%.

An Investor Has a Portfolio with 60% in a Riskfree