Asked by
Ashley Restituto
on Dec 08, 2024
Verified
You are considering investing $1,000 in a T-bill that pays 0.05 and a risky portfolio, P, constructed with two risky securities, X and Y. The weights of X and Y in P are 0.60 and 0.40, respectively. X has an expected rate of return of 0.14 and variance of 0.01, and Y has an expected rate of return of 0.10 and a variance of 0.0081. What would be the dollar value of your positions in X, Y, and the T-bills, respectively, if you decide to hold a portfolio that has an expected outcome of $1,120?
A) $568; $378; $54
B) $568; $54; $378
C) $378; $54; $568
D) $108; $514; $378
E) Cannot be determined.
Expected Rate of Return
The average amount of profit or loss one can expect on an investment, based on historical data or estimations of future performance.
Variance
A statistical measurement of the spread between numbers in a data set, reflecting their volatility.
Risky Portfolio
A collection of investments that hold a significant level of risk, aiming for potentially higher returns.
- Absorb the essential techniques for establishing a portfolio that combines investments both prone to risk and free from risk.
- Calculate the prospective yield and standard deviation for a given portfolio.
Verified Answer
DM
Learning Objectives
- Absorb the essential techniques for establishing a portfolio that combines investments both prone to risk and free from risk.
- Calculate the prospective yield and standard deviation for a given portfolio.