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    Excpected return and standard deviation of a portfolio

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    Given the following expected return vector and variance-covariance matrix for three assets:

    ER= 10.1
    7.8
    5.0

    VC= 210 60 0
    60 90 0
    0 0 0

    and given the fact that Pie Traynor's risky portfolio is split 50-50 between the two risky asets:

    a) Which security of the three must be the riskfree aset ? Why

    b) Calculate the excpected return and standard deviation ?

    c) If the riskfree asset makes up 25% of Pie's total portfolio, what are the total portfolio expected return and standard deviation ?

    d) What does the efficient set look like if riskfree borrowing is permitted but no lending is allowed? Explain with words and graphs.

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    https://brainmass.com/business/accounting/excpected-return-standard-deviation-portfolio-6801

    Solution Summary

    Given the expected return vector and variance-covariance matrix for three assets, the solution identifies which security of the three must be the riskfree aset and calculates the excpected return and standard deviation of a portfolio made of risky assets. The solution also calculates the excpected return and standard deviation of a portfolio made of risky assets and risk free asset.

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