An investor invests 30% of his funds in risk free asset and the remaining 70% of funds in anindex fund that represents the market. The risk-free return is 8%. The index fund is expectedto give a return of 21%. Using the CAPM Model.a. What is the expected return from the portfolio of the investor? The standard deviation ofreturns from the index funds is 9.80. What is the Standard Deviation of the portfolio return?b. If the investor withdraws his investment in the risk free security and invests the same alsoin the index fund, what is the expected return? What is the portfolio risk?

The objective of the question is to calculate the expected return and risk of a portfolio using the…

Answered: An investor invests 30% of his funds in…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter8: Analysis Of Risk And Return

Section: Chapter Questions

Problem 13P

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