Purchase Solution

Excpected return and standard deviation of a portfolio

Not what you're looking for?

Ask Custom Question

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.

Purchase this Solution

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.

Purchase this Solution


Free BrainMass Quizzes
Employee Orientation

Test your knowledge of employee orientation with this fun and informative quiz. This quiz is meant for beginner and advanced students as well as professionals already working in the HR field.

Income Streams

In our ever changing world, developing secondary income streams is becoming more important. This quiz provides a brief overview of income sources.

Learning Lean

This quiz will help you understand the basic concepts of Lean.

Cost Concepts: Analyzing Costs in Managerial Accounting

This quiz gives students the opportunity to assess their knowledge of cost concepts used in managerial accounting such as opportunity costs, marginal costs, relevant costs and the benefits and relationships that derive from them.

Business Ethics Awareness Strategy

This quiz is designed to assess your current ability for determining the characteristics of ethical behavior. It is essential that leaders, managers, and employees are able to distinguish between positive and negative ethical behavior. The quicker you assess a person's ethical tendency, the awareness empowers you to develop a strategy on how to interact with them.