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You are considering investing $1,000 in a complete portfolio. The complete portfolio is composed of Treasury bills that pay 5% and a risky portfolio, P, constructed with two risky securities, X and Y. The optimal weights of X and Y in P are 60% and 40% respectively. X has an expected rate of return of 14%, and Y has an expected rate of return of 10%. To form a complete portfolio with an expected rate of return of 8%, you should invest approximately __________ in the risky portfolio. This will mean you will also invest approximately __________ and __________ of your complete portfolio in security X and Y, respectively. A. 0%; 60%; 40% B. 25%; 45%; 30% C. 40%; 24%; 16% D. 50%; 30%; 20%

Respuesta :

Answer:

(There is typo error in question option c is C. 59.5%; 24.3%; 16.2%)

The correct answer is C. 59.5%; 24.3%; 16.2%.

Explanation:

This question requires us to tell what combination of investment will generate 8% return on our porffolio. To find out we will evaluate each option given in the question.

A. 0%; 60%; 40%

Return = 0% * 5% + 60% * 14% + 40%*10%

           = 12.4%

B. 25%; 45%; 30%

Return = 25% * 5% + 45% * 14% + 30%*10%

           = 10.55%

C. 59.5%; 24.3%; 16.2%

Return = 40% * 5% + 24% * 14% + 16%*10%

           = 8%

D. 50%; 30%; 20%

Return = 50% * 5% + 30% * 14% + 20%*10%

           = 8.7%

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