Question

MC Qu. 61 The return on the risky portfolio... The return on the risky portfolio is 15%. The risk-free rate, as well as the investor's borrowing rate, is 10%. The standard deviation of return on the risky portfolio is 20%. If the standard deviation on the complete portfolio is 25%, the expected return on the complete portfolio is _________.

Answer 1

Answer:

16.25%

Explanation:

The computation is shown below:

Let us assume the weight of risky portfolio is X

So, the standard deviation of the complete portfolio is

Standard Deviation of portfolio = X × Standard deviation of risky portfolio \

25% = X × 20%

So X = 1.25

Now

Expected Return on the complete portfolio is

= 1.25 × 15% - 0.25 × 10%

= 16.25%