Assume that you manage a risky portfolio with an expected rate of return of 13%
ID: 2637904 • Letter: A
Question
Assume that you manage a risky portfolio with an expected rate of return of 13% and a standard deviation of 29%. The T-bill rate is 5%. Your client chooses to invest 75% of a portfolio in your fund and 25% in a T-bill money market fund. a. What is the expected return and standard deviation of your client's portfolio? (Round your answers to 2 decimal places.) Expected return % per year Standard deviation % per year b. Suppose your risky portfolio includes the following investments in the given proportions: Stock A 22% Stock B 31% Stock C 47% What are the investment proportions of your client
Explanation / Answer
a>Expected Rate of Return in % =0.75*13+0.25*5 11 Standard Deviation in % =0.75*29+0.25*0 21.75 b>The Proportion of Investments are A=0.22*75 16.5 B=0.31*75 23.25 C=0.47*75 35.25 T-Bill 25 c> Reward to Volatility Ratio=(Expected Return-T Bill Rate)/SD=(13-5)/29 0.276