The return on the risky portfolio is 15%. The risk-free rate, as well as the investor's borrowing rate, is 10%. The standard deviation of return on the risky portfolio is 20%. If the standard deviation on the complete portfolio is 25%, the expected return on the complete portfolio is ________.
A) 6%
B) 8.75 %
C) 10%
D) 16.25%

Question

Quizplus · Accepted Answer

σ_c = y × σp = .25 σ_c = y × .20 = .25 y = .25/.20 = 1.25 1 − y = −.25 E(r_c) = 1.25 × 15% − .25 × 10% = 16.25%

The Return on the Risky Portfolio Is 15