In the table below expected risk premium is calculated using a risk-free rate of 4%. Using CML(
Question:
In the table below expected risk premium is calculated using a risk-free rate of 4%.
Using CML( capital market line ), calculate Returns for all the Portfolios with a risk tolerance of 8 percent. After calculating each portfolio's return, select the most appropriate portfolio for investment in accordance with the principle of CML theory.
How much of the funds should be invested in risk-free assets in your final Portfolio selected above.
EXPECTED RETURN STANDARD DEVIATION EXPECTED RISK PREMIUM/ UNIT OF RISK
1 7% 5% 0.40
2 9% 10% 0.50
3 11% 15% 0.47
4 13% 21% 0.43
Business Forecasting with ForecastX
ISBN: 978-0073373645
6th edition
Authors: Holton wilson, barry keating, john solutions inc