Security A offers an expected return of 14%, with a standard deviation of 8%. Security B offers an expected return of 11%, with a standard deviation of 6%. If you wish to construct a portfolio with a 12.8% expected return, what percentage of the portfolio will consist of security A?
A) 55%
B) 60%
C) 65%
D) 45%

Question

Quizplus · Accepted Answer

Let x be the percentage of the portfolio in security A. Then (100 - x) is the percentage of the portfolio in security B. 
Using the formula for expected return of a portfolio, we get:
12.8 = x(0.14) + (1-x)(0.11)
Solving for x, we get x = 0.6 or 60%. Therefore, the portfolio should consist of 60% of security A and 40% of security B.

Security a Offers an Expected Return of 14%, with a Standard