Assume that you manage a risky portfolio with an expected rate of return of 20%
ID: 2776003 • Letter: A
Question
Assume that you manage a risky portfolio with an expected rate of return of 20% and a standard deviation of 41%. The T-bill rate is 4%.
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 the overall portfolio? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
Assume that you manage a risky portfolio with an expected rate of return of 20% and a standard deviation of 41%. The T-bill rate is 4%.
Explanation / Answer
0.30 = y x 0.41
Y = 0.30/0.41
Y =73.17%
= 0.7317 x20%+( 1-0.7317)x4%
=15.71%