(Answered) Question a nbspabexpected returnnbsp1812standard

Finance

Question A:


	A	B
Expected return	18%	12%
Standard deviation	0.22	0.1
Correlation coefficient	0.2
Covariance	0.0044
Wa	11.29%
Wb		88.71%
Rp	12.68%

Question: B risk-averse investor is not happy with the risk of the portfolio that you have calculated. He would therefore like to reduce the risk of the portfolio by investing in a risk free government bond that is offering annual return of 5%.

However he is quite happy with slightly lower returns from this investment. You have to advise how much investor should invest in the portfolio (comprising of security A and security B) and the Risk free asset so that the combination of risky portfolio and risk free asset provides 10% return. How much is the risk of this new portfolio?

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