Assume that you manage a risky portfolio with an expected rate of return of 15%

Question

Assume that you manage a risky portfolio with an expected rate of return of 15% and a standard deviation of 29%. The T-bill rate is 5% Stock A Stock B Stock C 22 % 31% 47 % 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 20%. a. What is the investment proportion, y? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Investment proportion y b. What is the expected rate of return on the overall portfolio? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Rate of return

Explanation / Answer

(b) Mean return = 5% + (15% - 5%)y = 5% + 10% (0.6897) = 5% + 6.897% = 11.897%.

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