Assume that you manage a risky portfolio with an expected rate of return of 18%
ID: 2612381 • Letter: A
Question
Assume that you manage a risky portfolio with an expected rate of return of 18% and a standard deviation of 34%. The T-bill rate is 5.5%.
A client prefers to invest in your portfolio a proportion (y) that maximizes the expected return on the overall portfolio subject to the constraint that the overall portfolio's standard deviation will not exceed 30%.
What is the expected rate of return on your client's overall portfolio? (Do not round intermediate calculations. Enter your answer as a percentage rounded to two decimal places.)
Assume that you manage a risky portfolio with an expected rate of return of 18% and a standard deviation of 34%. The T-bill rate is 5.5%.
Explanation / Answer
Investment proportion Y = 30 / 34 = .8824 OR 88.24%
2)Expected return = risk free rate +(return on market -risk free rate )beta
= 5.5 +( 18 -5.5 ).8824
= 5.5 + 12.5*.8824
=5.5 + 11.03
= 16.53%