A portfolio manager is constructing a portfolio composed of two assets. Asset A is a risky asset with an expected return of 14% and a standard deviation of 22% whereas asset B is a risk-free asset with a return of 9%. If the portfolio manager increases the weight of the risky asset to 130%, then the portfolio's expected return is closest to:A. 18.2%B. 15.5%C. 16.7%

The correct answer is B.Expected return of the portfolio = (Weight of Asset A * Return of Asset A) + (Weight of Asset B * Return of Asset B) = (130% * 14%) + (-30% * 9%) = 15.5%

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This topic has 2 replies, 2 voices, and was last updated Apr-198:52 am by Matt_AnalystPrep.

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- Matt_AnalystPrep
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  17 Apr 2019 at 9:36 am
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  A portfolio manager is constructing a portfolio composed of two assets. Asset A is a risky asset with an expected return of 14% and a standard deviation of 22% whereas asset B is a risk-free asset with a return of 9%. If the portfolio manager increases the weight of the risky asset to 130%, then the portfolio’s expected return is closest to:
  - A. 18.2%
  - B. 15.5%
  - C. 16.7%
- saralseth
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  - Undecided
  18 Apr 2019 at 2:18 pm
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  solution please
- Matt_AnalystPrep
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  21 Apr 2019 at 8:52 am
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  The correct answer is B.
  
  Expected return of the portfolio = (Weight of Asset A * Return of Asset A) + (Weight of Asset B * Return of Asset B) = (130% * 14%) + (-30% * 9%) = 15.5%
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