You are considering investing $1,000 in a complete portfolio. The complete portfolio is composed...

Question:

You are considering investing $1,000 in a complete portfolio. The complete portfolio is composed of Treasury bills that pay 4% and a risky portfolio, P, constructed with two risky securities X and Y. The optimal weights of X and Y in P are 38% and 62% respectively. X has an expected rate of return of 30%, and Y has an expected rate of return of 60%. The dollar values of your position in X would be _____? In Y would be _____? and the dollar values of your position in the TBill would be _____? based upon your decision to hold a complete portfolio that has an expected return of 40%.

Portfolio return:

Portfolios are a combination of investments in risky common equity stocks, bonds & risk free assets in various proportions. We can lower Portfolio risks by diversification. Portfolios can be generated in such a way, so that portfolio returns are higher and risks of investments are lowered, than by investing in risky securities.

Answer and Explanation:

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Data-

  • Total portfolio Investment = $1,000
  • Expected returns from investing in risk free asset = Return 1 = 4.0% = 0.04
  • Expected returns from investing...

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Portfolio Weight, Return & Variance: Definition & Examples

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Chapter 12 / Lesson 1
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A portfolio can be designed in several different ways. It is important to understand the basics of a portfolio before building and managing one. In this lesson, we will go over the weight, return, and variance of a portfolio.


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