Question: State Probability r A r M 1 10% 15% 12% 2 40% 8% 6% 3 40% 4% 1% 4 10% -6% -2% Assume that security

State Probability r_A r_M

1 10% 15% 12%

2 40% 8% 6%

3 40% 4% 1%

4 10% -6% -2%

Assume that security M is actually the market portfolio and that your expectations about the market are correct. Assume that the risk-free rate, R_F is 2.60%. Assume an investor divides his available investable capital of $200,000 between F and M such that $50,000 is in F and the rest is in M. Calculate the expected return on the combined portfolio, C thus formed. Calculate the standard deviation of the portfolio,

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