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What is the expected return on your portfolio

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Question 1 - Suppose you have $100 to invest in two assets, A and B. A and B are the only assets available. A is a risky asset and B is a riskfree asset. The expected return on A is 5%, and B earns a riskfree rate of 3%. The standard deviations of returns on A and B are 10% and 0%, respectively. The covariance between the returns on the two assets is 0. If you invest $30 in A and $70 in B, what is the expected return on your portfolio?

A. 5%

B. 3%

C. 4.6%

D. 3.6%

Question 2 - If you want to invest $130 in A, how much do you have to short sell B? Assume you can fully use the proceeds from the short sale, and ignore margin and collateral requirements.

A. $10

B. $30

C. $100

D. $130

Question 3 - You are given two risky assets, A and B, and you want to combine them into a portfolio. A earns an expected return of 8% and has a standard deviation of 12%, while B earns an expected return of 13% and has a standard deviation of 20%. To find the optimal risky portfolio P*, what additional information do you need?

A. The risk free rate

B. The correlation between A and B

C. The risk free rate AND the correlation between A and B

D. Risk aversion

Reference no: EM133076792

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