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 two 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%. To form a complete portfolio with an expected rate of return of 11%, you should invest ________ of your complete portfolio in Treasury bills.
A) 19%
B) 25%
C) 36%
D) 50%

Question

Quizplus · Accepted Answer

.11 = W_f (.05) + (1 − W_f)[(.6)(.14) + (.4)(.10)] W_f = .19

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