6. Suppose that you have a risky asset that provides you with an expected return of...

 

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6. Suppose that you have a risky asset that provides you with an expected return of 12% per year with 20% volatility (standard deviation). Consider a risk-free asset that provides you with a 3% risk-free return. a. If you have $100,000 and invest 80% into the risky asset and 20% into the risk-free asset, what is the expected return and risk of your portfolio? b. How much will your portfolio be worth if the realized return on the risky asset is 15%? c. If you cannot borrow money, what is the maximum possible expected return on your portfolio, and what is the minimum? d. If you are allowed to borrow money at the risk-free rate, how can you get a portfolio with an 18% expected return and what is the risk of this portfolio? 6. Suppose that you have a risky asset that provides you with an expected return of 12% per year with 20% volatility (standard deviation). Consider a risk-free asset that provides you with a 3% risk-free return. a. If you have $100,000 and invest 80% into the risky asset and 20% into the risk-free asset, what is the expected return and risk of your portfolio? b. How much will your portfolio be worth if the realized return on the risky asset is 15%? c. If you cannot borrow money, what is the maximum possible expected return on your portfolio, and what is the minimum? d. If you are allowed to borrow money at the risk-free rate, how can you get a portfolio with an 18% expected return and what is the risk of this portfolio?

Answer rating: 100% (QA)

a To calculate the expected return and risk of the portfolio we need to consider the weighted average of the returns and volatilities of the individual assets Given Expected return of the risky asset ... View the full answer