Assume that you manage a risky portfolio with an expected rate of return of 12%
ID: 2612380 • Letter: A
Question
Assume that you manage a risky portfolio with an expected rate of return of 12% and a standard deviation of 28%. The T-bill rate is 4%. Your client chooses to invest 80% of a portfolio in your fund and 20% in a T-bill money market fund.
What is the expected return and standard deviation of your client's portfolio? (Enter your answer as a percentage rounded to two decimal places.)
Suppose your risky portfolio includes the following investments in the given proportions:
30%
What are the investment proportions of your client’s overall portfolio, including the position in T-bills?(Enter your answer as a percentage rounded to two decimal places.)
What is the reward-to-volatility ratio (S) of your risky portfolio and your client's overall portfolio? (Enter your answer as a decimal rounded to 4 decimal places.)
Assume that you manage a risky portfolio with an expected rate of return of 12% and a standard deviation of 28%. The T-bill rate is 4%. Your client chooses to invest 80% of a portfolio in your fund and 20% in a T-bill money market fund.
Explanation / Answer
Answer,
a)Expected return = Weight of portfolio*Rate of return from portfolio + Weight of T-bill*Rate of return from T-bill
= 0.8*12%+0.2*4% = 10.4%
Standard deviation = Weight of risky portfolio* Standard deviation of portfolio
= 0.8*0.28 = 0.224 = 22.4%
b)
And the T bill 20% (given)
c)
Proportion Stock A 20% Stock B 30% Stock C 50%