10. There is a risky portfolio of multiple stocks with an expected return of 14% and a standard deviation of 21%. Jason invests 65% of his total wealth on this risky portfolio and the rest 35% on Treasury bills (so, he has constructed a ‘complete portfolio’ of a risky asset and a risk-free asset). One-year T-bill rate is 3%. a. Calculate the expected return and standard deviation of his complete portfolio b. Calculate his risk premium of the risky portfolio as well as of the complete portfolio c. Compute the Sharpe ratio d. Draw the capital allocation line
10. There is a risky portfolio of multiple stocks with an expected return of 14% and a standard deviation of 21%. Jason invests 65% of his total wealth on this risky portfolio and the rest 35% on Treasury bills (so, he has constructed a ‘complete portfolio’ of a risky asset and a risk-free asset). One-year T-bill rate is 3%. a. Calculate the expected return and standard deviation of his complete portfolio b. Calculate his risk premium of the risky portfolio as well as of the complete portfolio c. Compute the Sharpe ratio d. Draw the capital allocation line
Chapter8: Analysis Of Risk And Return
Section: Chapter Questions
Problem 5P
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10. There is a risky portfolio of multiple stocks with an expected return of 14% and a standard deviation of 21%. Jason invests 65% of his total wealth on this risky portfolio and the rest 35% on Treasury bills (so, he has constructed a ‘complete portfolio’ of a risky asset and a risk-free asset). One-year T-bill rate is 3%.
a. Calculate the expected return and standard deviation of his complete portfolio
b. Calculate his risk premium of the risky portfolio as well as of the complete portfolio
c. Compute the Sharpe ratio
d. Draw the capital allocation line
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