Calculate the excpected return and standard deviation


Task: Given the following expected return vector and variance-covariance matrix for three assets:

ER= 10.1
        7.8
        5.0

VC= 210 60 0
         60 90 0
           0  0  0

and given the fact that Pie Traynor's risky portfolio is split 50-50 between the two risky asets:

a) Which security of the three must be the riskfree aset ? Why

b) Calculate the excpected return and standard deviation ?

c) If the riskfree asset makes up 25% of Pie's total portfolio, what are the total portfolio expected return and standard deviation ?

d) What does the efficient set look like if riskfree borrowing is permitted but no lending is allowed? Explain with words and graphs.

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Accounting Basics: Calculate the excpected return and standard deviation
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