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Basic Question 11 of 16

The standard deviation of a portfolio that has 40% of its value invested in a risk-free asset and 60% of its value invested in a risky asset with a standard deviation of 40% is ______.

A. 18%
B. 24%
C. 40%
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User Contributed Comments 5

User Comment
poomie83 Which 40% figure is being used here? Is it the risk free asset or the std dev?
thekobe recall that the risk free asset has zero variance, so the total variance can be calculated as: (weight in risk investment) times (std dev risk investment)
moneyguy (.40)(0) + (.60)(.40) = .24
bidisha thanks moneyguy
ZainabA he just used this formula SD(p)=(1-w1)*(SDrisky)
w1 is given already ==>SD(p)=(60%)*(40%)=24%
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I used your notes and passed ... highly recommended!
Lauren

Lauren

Learning Outcome Statements

explain risk aversion and its implications for portfolio selection

CFA® 2024 Level I Curriculum, Volume 2, Module 1.