Assume that you manage a risky portfolio with an expected rate of return of 12%

Question

Assume that you manage a risky portfolio with an expected rate of return of 12% and a standard deviation of 44%. The T-bill rate is 5%. 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? (Round your answers to 2 decimal places.) Suppose your risky portfolio includes the following investments in the given proportions: What are the investment proportions of your client's overall portfolio, including the position in T-bills? (Round your answers to 2 decimal places.) What is the reward-to-volatility ratio (S) of your risky portfolio and your client's overall portfolio? (Round your answers to 4 decimal places.)

Explanation / Answer

1) Expected Return = 12*0.8 +5*0.2 =10.6%

   Expected Standard Deviation =[0.8*(12-10.6)2+0.2(5-10.6)2]1/2 = 2.8%

2) T-Bill = 20%

   Stock A = (80*28)/10000 = 22.4%

   Stock B = (80*37)/10000 = 29.6%

   Stock A = (80*35)/10000 = 28%

3) Reward to volatility = (return on portfolio - return on T-Bill)/ Standard Deviation on portfolio

Risky Portfolio = (12-5)/44 = 0.16

Client's Overall Portfolio = (10.6-5)/2.8 = 2

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

---