CFA Practice Question

There are 294 practice questions for this study session.

CFA Practice Question

You invest $100 in a risky asset with an expected rate of return of 12% and a standard deviation of 15%, and a T-bill with a rate of return of 5%. What percentages of your money must be invested in the risky asset and the risk-free asset, respectively, to form a portfolio with an expected return of 9%?

A. 85% and 15%
B. 75% and 25%
C. 57% and 43%
Correct Answer: C

57% x 12% + 43% x 5% = 9%

User Contributed Comments 7

User Comment
poomie83 Could someone provide an explanation?
GinnyB Portfolio Return E(rp) = w1rf + (1-w1)E(ri)
0.09 = w1(0.05) + (1-w1)(0.12)
.03 = .07w1
w1 = 43% = % invested in risk free asset
(1-w1) = 57% = % invested in risky asset
thekobe or simply do the calculations for the three options till you get the 9%
safash @the Kobe tat sounds good
moneyguy Ignore the standard deviation information given. Only need expected returns and weights...
johntan1979 @thekobe and safash... which will take up tons of precious minutes (especially if the right answer is the last option)

This is basic algebra. Either you get it or you don't.
jonan203 yea, i wouldn't rely on the process of elimination for the CFA.

use the formula and solve for w1, much faster than pluging in the values and seeing if they equal 9%.
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