You are considering investing $1,000 in a T-bill that pays 0.05 and a risky portfolio, P, constructed with two risky sec

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You Are Considering Investing 1 000 In A T Bill That Pays 0 05 And A Risky Portfolio P Constructed With Two Risky Sec 1 (109.26 KiB) Viewed 34 times

You are considering investing $1,000 in a T-bill that pays 0.05 and a risky portfolio, P, constructed with two risky securities, X and Y. The weights of X and Y in P are 0.60 and 0.40, respectively. X has an expected rate of return of 0.14 and variance of 0.01, and Y has an expected rate of return of 0.10 and a variance of 0.0081. Covariance of X and Y returns is 1.5%. (15 marks) a. If you want to form a portfolio with an expected rate of return of 0.10, what percentages of your money must you invest in the T-bill, X, and Y, respectively, if you keep X and Y in the same proportions to each other as in portfolio P? (10 marks) b. What is the standard deviation of this portfolio? (5 marks)