Dr. Filly invests $100 in a risky asset and a risk-free asset. The risky asset has an expected return of 12% and a standard deviation of 15%, while the risk-free has a return of 5%.
What percentages of Dr. Fillyâ??s money must be invested in the risk-free asset and the risky asset, respectively, to form a portfolio with a standard deviation of 0.06?
For a portfolio of risk asset and a risk free assets, the portfolio standard deviation is calculated as
Portfolio standard ...
The solution explains how to determine the percentages to be invested in risk-free asset and the risky asset so as to get the desired standard deviation of the portfolio