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Compute the expected return and the risk

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Reference no: EM133071133

Question - You have been given the following data:

States

Probability

X

Y

Bear Market

0.3

-5%

-3%

Normal Market

0.5

18%

10%

Bull Nom Market

0.2

50%

10%

Required -

i. If you will invest $100,000 in X and $50,000 in Y. Compute the expected return and standard deviation of the risky portfolio.

ii. Compute the expected return and the risk of a complete portfolio in which you combine equally between the risky portfolio and the risk-free asset. The risk-free rate of return is 6%.

iii. Explain the Capital Allocation Line (CAL) and compute its slope.

Reference no: EM133071133

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