Question

If the risk-free rate of return is 6%, and if a risky asset is available with a return of 9% and a standard deviation of 3%, what is the maximum rate of return you can achieve if you are willing to accept a standard deviation of 2%

Answer 1

Answer:

8.01%

Explanation:

If risk-free rate of return is 6%

if a risky asset is available with a return of 9%

If standard deviation of the portfolio is 2%.

Portfolio Return if S.D. is 2% = 0.33*6% + 0.67*9%

Portfolio Return =  0.33*0.06 + 0.67*0.09

Portfolio Return = 0.0198 + 0.0603

Portfolio Return = 0.0801

Portfolio Return = 8.01%

Hence, the he maximum rate of return we can achieve if we are willing to accept a standard deviation of 2% is 8.01%