- CFA Exams
- CFA Level I Exam
- Study Session 18. Portfolio Management (1)
- Reading 52. Portfolio Risk and Return: Part I
- Subject 4. Risk Aversion and Portfolio Selection

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**CFA Practice Question**

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 ______.

B. 24%

C. 40%

A. 18%

B. 24%

C. 40%

Correct Answer: B

40% x 60% = 24%

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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% |