A portfolio P consists of a 3-month Treasury Bills and all risky common shares included in the FTSE ALL share index. The T-Bills offers 2.14% yield, whereas the FTSE-ALL Share portfolio has the expected return of 5.4% annually with standard deviation of 5.7% based on the latest forecasts of the UK economy in the next 12 months. An investor has $1,000,000 in cash and considers buying and holding portfolio P.

How much money does he need to invest in the FTSE-ALL Share Index such that the expected return on portfolio P would be 3.0%?

A. $241,573

B. $278,459

C. $263,804

D. $736,196

Answer rating: 100% (QA)

D 736196 Expected return on the portfolio w Rp 1 w Rf 3 w 0054 1 w 00214 3 005... View the full answer