Question 2
You manage a risky portfolio with an expected rate of return of 18% and a standard deviation of 28%. The T-bill rate is 8%.
Your client chooses to invest 70% of a portfolio in your fund and 30% in an essentially risk-free money market fund. What is the expected value and standard deviation of the rate of return on his portfolio?
Question 3
Referencing the previous question: you manage a risky portfolio with an expected rate of return of 18% and a standard deviation of 28%. The T-bill rate is 8%.
Suppose that your risky portfolio includes the following investments in the given proportions:
Stock A | 25% |
Stock B | 32% |
Stock C | 43% |
What are the investment proportions of your client’s overall portfolio, including the position in T-bills?
Question 4
Referencing the previous questions: You manage a risky portfolio with an expected rate of return of 18% and a standard deviation of 28%. The T-bill rate is 8%. What is the reward-to-volatility (Sharpe) ratio (S) of your risky portfolio? Your client’s?
Question 5
Referencing the previous questions: You manage a risky portfolio with an expected rate of return of 18% and a standard deviation of 28%. The T-bill rate is 8%. Draw the CAL of your portfolio on an expected return-standard deviation diagram. What is the slope of the CAL? Show the position of your client on your fund’s CAL.