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    Risk-free asset and the risky asset

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    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?

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    Solution Preview

    For a portfolio of risk asset and a risk free assets, the portfolio standard deviation is calculated as
    Portfolio standard ...

    Solution Summary

    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