=0.5^2*var(*risky return) + 0.5^2*var(*risk-free return) + 2*0.5*0.5*Cov(returns)
latter tow terms are just 0.
Take square root and get your answer of 3%.
Suppose there is a risk-free asset, which generates return 5%, and a risky asset, which generates a mean return of 10% with the standard deviation 6%. How much standard deviation will you have to take in your portfolio to generate an expected return of 7.5%?
Am I right to think the standard deviation would be 3%? Because to get the 7.5% return you have to have an equal amount of each one of the assets, and one has a standard deviation of 6% while the other has zero risk.......please explain how you came to your answer..
