You invest $100 in a risky asset with an expected rate of return of 0.11 and a standard deviation of 0.21 and a T-bill with a rate of return of 0.045. What percentages of your money must be invested in the risk-free asset and the risky asset, respectively, to form a portfolio with a standard deviation of 0.08?
A) 30.1% and 69.9%
B) 50.5% and 49.50%
C) 60.0% and 40.0%
D) 61.9% and 38.1%
E) Cannot be determined.

Question

Quizplus · Accepted Answer

To achieve a portfolio standard deviation of 0.08, you need to solve for the weights using the formula for portfolio standard deviation. The weight of the risky asset (w) is calculated as 0.08 / 0.21 = 0.381, meaning 38.1% in the risky asset and 61.9% in the risk-free asset.

You Invest $100 in a Risky Asset with an Expected