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Assume that you are managing a risky portfolio with expected rate of return of 18% and standard deviation of 28%. The T-bill rate is 8%.
Assume that you are managing a risky portfolio with expected rate of return of 18% and 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 a T-bill money market fund. Also, the clients expected return of the portfolio is 15% and the standard deviation of the rate of return on his portfolio is 19.6%.
- Suppose that your risky portfolio includes the following investments in the given proportions: Stock X 25%, Stock Y 32%, Stock Z 43%. What are the investment proportions of your clients overall portfolio including the position in T-bills?
- What is the reward-to-volatility ratio S of your risky portfolio? Calculate also this ratio for your client?
- Draw the CAL (capital allocation line) of your portfolio on an expected returnstandard deviation diagram. Show the position of your client on your funds CAL.
- Suppose that your client decides to invest in your portfolio a proportion y of the total investment budget so that the overall portfolio will have an expected rate of return of 16%. What is the proportion y?
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