Consider a portfolio with the following characteristics (please refer to file Data Problem S2 for your...

 

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Consider a portfolio with the following characteristics (please refer to file "Data Problem S2" for your individual set of data): Expected return of "E(r) low" Risk (standard deviation) of "Risk low" Therefore, we are using the data for the low risk portfolio. a) Using a risk free rate of 3%, build the Capital Allocation Line in a table as the following example (tip: you can find an example at our F2F session labelled "S7 Portfolio Management 21feb23") for the complete portfolio (remember that the complete portfolio is the result of the allocation to the risky and risk-free assets) Allocation to risky asset (y) Allocation to risk free asset (1-y) Risk (standard deviation) of portfolio Expected return of portfolio 0% 20% 100% 80% 40% 60% 60% 40% 80% 20% 100% 0% E(rc) = y * E(rp) + (1y) *r{ * = P (remember that the risk free asset does not contribute to the risk of the complete portfolio) where: E(rc) is the expected return of the complete portfolio E(rp): is the expected return of the risky portfolio r: is the risk free rate : is the risk (standard deviation) of the complete portfolio C is the risk (standard deviation) of the risky portfolio P Consider a portfolio with the following characteristics (please refer to file "Data Problem S2" for your individual set of data): Expected return of "E(r) low" Risk (standard deviation) of "Risk low" Therefore, we are using the data for the low risk portfolio. a) Using a risk free rate of 3%, build the Capital Allocation Line in a table as the following example (tip: you can find an example at our F2F session labelled "S7 Portfolio Management 21feb23") for the complete portfolio (remember that the complete portfolio is the result of the allocation to the risky and risk-free assets) Allocation to risky asset (y) Allocation to risk free asset (1-y) Risk (standard deviation) of portfolio Expected return of portfolio 0% 20% 100% 80% 40% 60% 60% 40% 80% 20% 100% 0% E(rc) = y * E(rp) + (1y) *r{ * = P (remember that the risk free asset does not contribute to the risk of the complete portfolio) where: E(rc) is the expected return of the complete portfolio E(rp): is the expected return of the risky portfolio r: is the risk free rate : is the risk (standard deviation) of the complete portfolio C is the risk (standard deviation) of the risky portfolio P

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Here is the capital allocation line table for the low r... View the full answer