The market portfolio has an expected return of 117 percent a

The market portfolio has an expected return of 11.7 percent and a standard deviation of 21.7 percent. The risk-free rate is 4.7 percent.

What is the expected return on a well-diversified portfolio with a standard deviation of 8.7 percent? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places (e.g., 32.16).)

What is the standard deviation of a well-diversified portfolio with an expected return of 19.7 percent? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places (e.g., 32.16).)

Solution

a. expected return = 4.7% + 8.7/21.7 *(11.7 - 4.7)

expected return = 7.51%

b. standard deviation = (19.7 - 4.7)/(11.7 - 4.7) * 21.7%

standard deviation = 46.50%