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Compute the standard deviation of portfolio

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Reference no: EM133046587

The total risk of Portfolios X, Y and Z are 49%^2 , 64%^2 and 100%^2 respectively. The market price of risk is 8%. The Market Portfolio (M) has an expected return and a total risk of 11% and 100%^2 respectively. You want to form another Portfolio A by investing $70,000 in Portfolio X and $30,000 in Portfolio Y.

You have the following questions for your investment advisor.

a) Compute the standard deviation of Portfolio A if Portfolio X and Portfolio Y are:

i) perfectly positively correlated

ii) uncorrelated

iii) perfectly negatively correlated Please present the final answer in % with 2 decimal places.

What conclusions on risk reduction you can draw for each case from the above computations and answers?

b) If the expected return of Portfolio Z is 9.4% and it is lying on the Securities Market Line (SML), what is the systematic risk of Portfolio Z? Please answer in %^2 .

c) Is Portfolio Z the Market Portfolio as it has the same level of total risk (i.e., 100%^2 ) as the Market Portfolio? Why or why not?

d) You are considering borrowing $70,000 at the risk-free rate. Combined with your personal savings of $100,000, you plan invest all these monies in the Market Portfolio. Compute the portfolio's expected return and standard deviation? Please answer in %.

Reference no: EM133046587

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