Suppose you invest equal amounts in a portfolio with an expected return of 16% and a standard deviation of returns of 18% and a risk-free asset with an interest rate of 4%. Calculate the expected return on the resulting portfolio.

Expected return on resulting portfolio = 10%

Explanation:

We are given the following:

Expected return or mean = 16%

Interest rate = 4%

Standard deviation of returns = 18%

We have the formula:

Expected return on the resulting portfolio = (mean/2) + (interest rate) / 2

= (0.16/2) + (0.04/2) = 0.1

= 0.1*100 = 10%