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Calculating Expected Return & Standard Deviation

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Suppose a risk-free asset has a 5 percent return and a second asset has an expected return of 13 percent with a standard deviation of 23 percent. Calculate the expected portfolio return and standard deviation of a portfolio consisting of 10 percent of the risk-free asset and 90 percent of the second asset.

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Solution Summary

The solution describes the steps to calculate expected return and standard deviation of a portfolio consisting of a risk free asset and a asset with risk element.

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Weight of Risk free asset, A=wa=10%=0.10
Weight of Second Asset B=wb=90%=0.90
Expected return from asset A=E(Ra)=5%
Standard deviation of stock A=sa=0% (As risk ...

Solution provided by:
  • BEng (Hons) , Birla Institute of Technology and Science, India
  • MSc (Hons) , Birla Institute of Technology and Science, India
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