Question: Assume that the risk-free rate is 5%. The expected rate of return on the market is 11% and the standard deviation of returns on the market portfolio is 20%.
1. Calculate the expected return and standard deviation of returns for portfolios that are 25%,75% and 125% invested in the market portfolio. The expected return on the market should be used to represent the portfolio weights.
2. Draw the return-risk graph to illustrate the results in question 1. Please label properly.