Suppose you invest equal amounts in a portfolio with an expected return of 16% and a standard deviation of returns of 18% and a risk-free asset with an interest rate of 4%.Calculate the standard deviation of the returns on the resulting portfolio.
A)8%
B)10%
C)20%
D)9%

Question

Quizplus · Accepted Answer

The standard deviation of the portfolio is the weighted average of the standard deviations of the individual assets, where the weights are the proportions of the portfolio invested in each asset. In this case, the portfolio is invested equally in the risky asset and the risk-free asset, so the standard deviation of the portfolio is:(0.5 * 18%) + (0.5 * 0%) = 9%

Suppose You Invest Equal Amounts in a Portfolio with an Expected