Assume you have an optimal risky portfolio with an expected return of 17% and a standard deviation of 27%, if the current risk free rate is 5% what is the optimal percentage to invest in ORP (y*)? Please write all percentages as decimals (for example write .242 instead of 24.2%). Use a risk aversion measure (A) of 2. Note: Correct answer is 0.8230 Please explain?
Risk and return
Before understanding the concept of Risk and Return in Financial Management, understanding the two-concept Risk and return individually is necessary.
Capital Asset Pricing Model
Capital asset pricing model, also known as CAPM, shows the relationship between the expected return of the investment and the market at risk. This concept is basically used particularly in the case of stocks or shares. It is also used across finance for pricing assets that have higher risk identity and for evaluating the expected returns for the assets given the risk of those assets and also the cost of capital.
Assume you have an optimal risky portfolio with an expected return of 17% and a standard deviation of 27%, if the current risk free rate is 5% what is the optimal percentage to invest in ORP (y*)?
Please write all percentages as decimals (for example write .242 instead of 24.2%). Use a risk aversion measure (A) of 2.
Note: Correct answer is 0.8230 Please explain?
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