*plese explain how to do the problem* Assume that you manage a risky portfolio w

Question

*plese explain how to do the problem*

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 5%.

Your risky portfolio includes the following investments in the given proportions:

Your client decides to invest in your risky portfolio a proportion (y) of his total investment budget with the remainder in a T-bill money market fund so that his overall portfolio will have an expected rate of return of 14%.

What are your client's investment proportions in your three stocks and the T-bill fund? (Round your intermediate calculations and final answers to 2 decimal places.)

What is the standard deviation of the rate of return on your client's portfolio? (Round your intermediate calculations and final answer to 2 decimal places.)

*plese explain how to do the problem*

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 5%.

Explanation / Answer

a. Expected return of the portfolio = weightof risky portfolio*expected return + weight of T bill*expecetd return

14% = y*15% +(1-y)*5%

9% = 10%y

y = 90.00% or 0.90

b. Tbill = 100-90% = 10%

Stock A = 90%*26% = 23.40%

Stock B=90%*33% = 29.70%

Stock C =90%*41% = 36.90%

c. standard deviation of the rate of return on your client's portfolio = w*standard deviation of risky asset =90%*31% = 27.90%

Related Questions

Navigate

• Browse (All)
• Browse #
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.