3. Consider the following portfolio of two risky assets: the asset 1 with return r1 and...

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Finance

3. Consider the following portfolio of two risky assets: theasset 1 with return r1 and the asset 2 with return r2. We invest xdollars in the asset 1 and (1-x) dollars in the asset 2, where0<=x<=1.
a. Calculate the expected value of the portfolio E[rp]
b. Calculate the variance of the portfolio, Var(rp)
c. Based on your findings on the part b. what kind of assets youshould choose when constructing the portfolio.
d. CAPM assets that all investors will hold the optimalportfolio. What is the optimal portfolio in this context?

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4.4 Ratings (840 Votes)

Part a Erp weighted average return of individual securities xr1 1 xr2 Part b Variance of the portfolio 2p x221 1 x222 212x1 x12 Where 1 and 2 are the standard See Answer

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3. Consider the following portfolio of two risky assets: theasset 1 with return r1 and the asset 2 with return r2. We invest xdollars in the asset 1 and (1-x) dollars in the asset 2, where0<=x<=1.a. Calculate the expected value of the portfolio E[rp]b. Calculate the variance of the portfolio, Var(rp)c. Based on your findings on the part b. what kind of assets youshould choose when constructing the portfolio.d. CAPM assets that all investors will hold the optimalportfolio. What is the optimal portfolio in this context?