Problem
An investor wants to invest money in Treasury bills and a risky fund managed by Infinity Capital. The investor wants to achieve an expected return of 9% on his complete portfolio. Infinity Capital has an expected return of 12% and a standard deviation of returns of 10%. T-bills have a return of 6%.
Part I
What proportion of his total investment should he invest in the risky fund in order to achieve the expected return?
Part II
What is the standard deviation of the complete portfolio?