Suppose that the borrowing rate that your client faces is 12%. Assume that the S

Question

Suppose that the borrowing rate that your client faces is 12%. Assume that the S&P; 500 index has an expected return of 17% and standard deviation of 21%. Also assume that the risk-free rate is rf = 6%. Your fund manages a risky portfolio, with the following details: E(rp) = 16%, ?p = 26%. What is the largest percentage fee that a client who currently is lending (y < 1) will be willing to pay to invest in your fund and what about a client who is borrowing (y > 1)? Need answer in less than 45 mins, will respond right away with positive feedback. Please and thank you!!

Explanation / Answer

E(rp) = 16%, ?p = 26%.

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