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A complete portfolio is composed of risk-free security and a risky portfolio, P, constructed with...

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A complete portfolio is composed of risk-free security and a risky portfolio, P, constructed with two risky securities, X and Y. The optimal weights of X and Y in P are 40% and 60% respectively. Given the risk-free rate of 4%, X has an expected return of 10%, and Y has an expected return of 20%.

1. Figure out the expected return of the risky portfolio, P

2. To form a complete portfolio with the expected return of 22%, what are the portfolio weights for the risk-free security and the risky portfolio P, respectively? Explain your transaction to achieve a return of 22%.

Security Beta Standard Deviation Expected return S&P 500 1.0 15% 9.0% 0.0 0% 3.0% Risk-free security Stock D O 40% 12.0% Stock E 0.8 20% ( % Stock F 1.2 25% ()%

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