You Invest $1,000 in a Risky Asset with an Expected

question 20

Multiple Choice

You invest $1,000 in a risky asset with an expected rate of return of 0.17 and a standard deviation of 0.40 and a T-bill with a rate of return of 0.04. What percentages of your money must be invested in the risky asset and the risk-free asset, respectively, to form a portfolio with an expected return of 0.11?

• A)53.8% and 46.2%
• B)75% and 25%
• C)62.5% and 37.5%
• D)46.2% and 53.8%

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Definitions:

Discounted Component

A part of a financial transaction that is sold or bought at less than its face value or principal amount.

Weights

Factors or numerical values assigned to variables to reflect their importance or contribution in a calculation or model.

Expected Return

The anticipated profit or loss from an investment over a specific period, considering all possible outcomes.

Economic Scenarios

Hypothetical projections used to analyze the potential impacts of different economic conditions on businesses or investments.