problem: An investor is holding a portfolio containing a risk free asset & a risky asset. The expected return on the portfolio is 10 percent, the risk-free rate is 3 percent, and the expected return on the risky asset is 17 percent.
[A] If the standard deviation of the portfolio (σP) is 8 percent, determine the standard deviation of the risky asset? Show your work.
[B] Based on your calculations in part A., estimate the Sharpe ratio? Interpret in words the meaning of the number you find.
[C] What proportion of the portfolio is invested in the risky asset?