The risk-free rate is 1% while the expected return and standard deviation of the market portfolio...

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Finance

The risk-free rate is 1% while the expected return and standarddeviation of the market portfolio (S&P
500) are 9% and 19%, respectively.
(a) What is the standard deviation ofa combination of risk-free security and S&P 500 that has an
expected return of 12%? What is itsprobability of loss? Assume that the S&P 500 returns have
a normal probability distribution.
(b) The optimal allocation to S&P500 for an investor is 60%. What will be the optimal allocationto
S&P 500 for this investor if thestandard deviation of S&P 500 returns were to increase to25%?

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a What is the standard deviation of a combination of riskfree security and SP 500 that has an expected return of 12 What is its probability of loss Assume that the SP 500 See Answer

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The risk-free rate is 1% while the expected return and standarddeviation of the market portfolio (S&P500) are 9% and 19%, respectively.(a) What is the standard deviation ofa combination of risk-free security and S&P 500 that has anexpected return of 12%? What is itsprobability of loss? Assume that the S&P 500 returns havea normal probability distribution.(b) The optimal allocation to S&P500 for an investor is 60%. What will be the optimal allocationtoS&P 500 for this investor if thestandard deviation of S&P 500 returns were to increase to25%?