Security-A offers an expected rate of return of 14% with a standard deviation of 8%. Security-B offers an expected rate of return of 11% with a standard deviation of 6%. If an investor wishes to construct a portfolio wit

Portfolio Construction for Desired Expected Return Given: Expected Rate of Return of Security A (E(R A )) = 14% Expected Rate of Return of Security B (E(R B )) = 11% Desired Expected Rate of Return of Portfolio (E(R P )) = 12.8% Let W A be the percentage of the portfolio invested in Security A. Then, the percentage of the portfolio invested in Security B will be (1 - W A ). Formula for Expected Return of a Portfolio: E(R P ) = W A E(R A ) + W B E(R B ) Substituting the given values: 12.8% = W A × 14% + (1 - W A ) × 11% 12.8 = 14W A + 11 - 11W A 12.8 = 3W A + 11 12.8 - 11 = 3W A 1.8 = 3W A W A = 1.8 / 3 W A = 0.6 Therefore, the percentage of the portfolio that will consist of Security A is 60%. Consequently, the percentage of the portfolio that will consist of Security B is (1 - 0.6) = 0.4 or 40%.