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Expected return standard deviation correlation coefficient

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Reference no: EM13852725

Question A:




  A B
Expected return  18% 12%
Standard deviation  0.22 0.1
Correlation coefficient  0.2
Covariance 0.0044
Wa 11.29%  
Wb   88.71%
Rp 12.68%



Question: B  risk-averse investor is not happy with the risk of the portfolio that you have calculated. He would therefore like to reduce the risk of the portfolio by investing in a risk free government bond that is offering annual return of 5%.

However he is quite happy with slightly lower returns from this investment. You have to advise how much investor should invest in the portfolio (comprising of security A and security B) and the Risk free asset so that the combination of risky portfolio and risk free asset provides 10% return. How much is the risk of this new portfolio?

Reference no: EM13852725

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