Question
a. Suppose that you manage a risky portfolio with an expected rate of return of 17% and a standard deviation of 27%. The T-bill rate
a. Suppose that you manage a risky portfolio with an expected rate of return of 17% and a standard deviation of 27%. The T-bill rate is 7%.
Your client chooses to invest 70% of a portfolio in your fund and 30% in the T-bills.
What is the slope of the Capial Allocation Line (CAL)?
Your answer should be in decimal values and accurate to the hundredth. For example, if the slope is 0.1589, then type in 0.16.
b. Suppose the same client in part a decides to invest in your risky portfolio a proportion (y) of his total investment budget so that his overall portfolio will have an expected rate of return of 15%.
What is the proportion y?
Your answer should be in decimal values and accurate to the hundredth. For example, if the proportion y is 0.3268, then type in 0.33.
c. Given the allocation y as derived in part b, what is the standard deviation of the rate of return on your client's portfolio?
Your answer should be in percentage points and accurate to the hundredth.
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