3. Asset 1 has an expected return of 10% with a standard deviation of 25%, and asset 2 has an expected return of 15% and a standard deviation of 35%. The covariance between the returns is 0.0175 and the risk-free rate is 8%. (a) What is the optimal portfolio consisting of risky assets and risk-free asset if you want an average return of 0.10? Answer. (b) Can you find a portfolio consisting of risky and risk-free assets with average return of 0.10 and variance of return 0.009? Why or why not? Answer.

3. Asset 1 has an expected return of 10% with a standard deviation of 25%, and asset 2 has an expected return of 15% and a standard deviation of 35%. The covariance between the returns is 0.0175 and the risk-free rate is 8%. (a) What is the optimal portfolio consisting of risky assets and risk-free asset if you want an average return of 0.10? Answer. (b) Can you find a portfolio consisting of risky and risk-free assets with average return of 0.10 and variance of return 0.009? Why or why not? Answer.

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter3: Risk And Return: Part Ii

Section: Chapter Questions

Problem 7MC: Write out the equation for the Capital Market Line (CML), and draw it on the graph. Interpret the...

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