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You want to invest $1,800 in a portfolio
You want to invest $1,800 in a portfolio. The portfolio is composed of risk free asset that pay 3% and a risky asset, A, that has an expected rate of return of 11.8%. To form your portfolio with an expected rate of return of 8%, you should invest percent in the risky asset A. 59.77% 58.19% 49.11% 61.93% 69.8% 60.09% 51.3% 56.8%
Expert Solution
Amount Invested in Portfolio is $1800
- Risk Free Assets return = 3%
- Risky Asset A Return = 11.8%
Expected Return of Portfolio = 8%
Let the weight of investment in risky Asset A is X
& weight of Risk free asset is (1-X)
Caluclating the Weight of risky Asset A in Portfolio:-
Expected Return of Portfolio = (Weight of Risky Asset A)(Expected Return of Risky Asset A) + (Weight of Risk Free Asset)(Expected Return of Risk Free Asset)
8% = (X)(11.8%) + (1-X)(3%)
8% = 11.8%*X +3% - 3%*X
5% = 8.8%*X
X = 56.8%
So, Weight of risky Asset A in Portfolio is 56.8%
Option 8
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