You invest $100 in a risky asset with an expected rate of return of 0.11 and a standard deviation of 0.20 and a T-bill with a rate of return of 0.03. What percentages of your money must be invested in the risky asset and the risk-free asset, respectively, to form a portfolio with an expected return of 0.08?
A) 85% and 15%
B) 75% and 25%
C) 62.5% and 37.5%
D) 57% and 43%
E) Cannot be determined.

Question

Quizplus · Accepted Answer

To achieve an expected portfolio return of 0.08, use the formula: 0.08 = x(0.11) + (1-x)(0.03). Solving for x gives x = 0.625, meaning 62.5% in the risky asset and 37.5% in the risk-free asset.

You Invest $100 in a Risky Asset with an Expected