1. Consider a T-bill with a rate of return of 5 percent and the following risky securities:

Security A: E(r)= 0.15: Variance = 0.04

Security B: E(r)= 0.10: Variance= 0.0225

Security C: E (r) = 0.12: Variance=0.01

Security D: E(r) = 0.13:Variance=0.0625

2. You are considering investing 1,000 EUR in a combination of the risk-free rate that pays 5% and a risky portfolio, P, constructed with 2 risky securities, X and Y. The weights of X and Y in P are 0.60 and 0.40, respectively, X has an expected rate of return of 14% and a variance of 15%, and Y has an expected rate of return of 10% and a variance of 20%.

If you want to form a portfolio with an expected rate of return of 11%, what percentage of your money must you invest in the risk-free rate Rf, and in portfolio P, respectively?

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Answer rating: 100% (QA)

1 To calculate the risk premium of each security we need to subtract the riskfree rate from their expected rate of return Security A 015 005 010 Secur... View the full answer