You invest $1,000 in a complete portfolio. The complete portfolio is composed of a risky asset with an expected rate of return of 16% and a standard deviation of 20% and a Treasury bill with a rate of return of 6%. A portfolio that has an expected value in 1 year of $1,100 could be formed if you _________.
A. place 40% of your money in the risky portfolio and the rest in the risk-free asset
B. place 55% of your money in the risky portfolio and the rest in the risk-free asset
C. place 60% of your money in the risky portfolio and the rest in the risk-free asset
D. place 75% of your money in the risky portfolio and the rest in the risk-free asset
Answer: A. place 40% of your money in the risky portfolio and the rest in the risk-free asset
$1,100 = y × (1,000)(1.16) + (1 - y)1,000(1.06), so y =.4