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Balancing a Portfolio of Risky vs. Risky Free Assets

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November 13th, 2022

You invest $1000 in a risky asset with an expected rate of return of 0.17 and a standard deviation of 0.40 and a T-bill with a rate of return of 0.04

A) What percentages of your money must be invested in the risky asset and the risk-free asset, respectively, to form a portfolio with an expected return of 0.11?

B) What percentages of your money must be invested in the risk-free asset and the risky asset, respectively, to form a portfolio with a standard deviation of 0.20?

C) What is the slope of the Capital Allocation Line formed with the risky asset and the risk-free asset?

-I am having trouble looking in the book and figuring out exactly what formula to use. Included in the answer, please have a full description of how the problem is solved and what formula is used.

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