Assume that you manage a risky portfolio with an expected rate of return of 15%
ID: 2650739 • Letter: A
Question
Assume that you manage a risky portfolio with an expected rate of return of 15% and a standard deviation of 31%. The T-bill rate is 4%. Your client chooses to invest 70% of a portfolio in your fund and 30% 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:
33%
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.)
Assume that you manage a risky portfolio with an expected rate of return of 15% and a standard deviation of 31%. The T-bill rate is 4%. Your client chooses to invest 70% of a portfolio in your fund and 30% in a T-bill money market fund.
Explanation / Answer
a.What is the expected return and standard deviation of your client's portfolio? (Round your answers to 2 decimal places.)
Expected return = Weight of Risky Portfolio*Expected return of risky Portfolio + Weight of T-Bill*Expected return of T-Bill
Expected return = 70%*15 + 30%*4
Expected return = 11.70%
Standard Deviation = Weight of Risky Portfolio*Standard Deviation of risky Portfolio
Standard Deviation = 70%*31
Standard Deviation = 21.70%
Expected return 11.70% per year
Standard deviation 21.70% per year
b.Suppose your risky portfolio includes the following investments in the given proportions:
Stock A 26%
Stock B 33%
Stock C 41%
What are the investment proportions of your client