I sent this question yesterday and received no response. I really don’t understand this and need help.
A portfolio gives at 10% return with a standard deviation of 18%. You would like the standard deviation to drop to 14%. What should you do? What should you do if you want the standard deviation to rise to 23%.
OUR NOTES give the answers, however, I don’t understand how they reached the numbers.
The answer to the first part is to add more risk-free assets until they account for 4/18 of the portfolio
The answer to the second part is use debt to finance an increase in the size of this portfolio by 5/18.
I don’t understand this can you please provide a step by step on how these answers were reached.
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