Computation of the standard deviation of the portfolio

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Reference no: EM1311093

An investor is holding a portfolio containing a risk-free asset and a risky asset. The expected return on the portfolio is 10%, the risk-free rate is 3%, and the expected return on the risky asset is 17%.

a) What proportion of the portfolio is invested in the risky asset? Show your work.

b) If the standard deviation of the portfolio (σP) is 8%, what is the standard deviation of the risky asset? Show your work.

c) Based on your calculations in part b., what is the Sharpe ratio? Show your work. Interpret in words the meaning of the number you find.

Reference no: EM1311093

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