Question
Assume that you manage a risky portfolio with an expected rate of return of 15% and a standard deviation of 30%. The T-bill rate is
Assume that you manage a risky portfolio with an expected rate of return of 15% and a standard deviation of 30%. The T-bill rate is 5%. Your client chooses to invest 120% of a portfolio in your fund and -20% in a T-bill money market fund.
a. Suppose your risky portfolio includes the following investments in the given proportions: Stock A 30% Stock B 50% Stock C 20% www.mhhe.com/bkm What are the investment proportions of your clients overall portfolio, including the position in T-bills?
b. Your clients Sharpe ratio must be equal to your portfolios Sharpe ratio. Do you agree? Why?
c. If the standard deviation of your clients portfolio is 35%, what is the expected return?
d. If the interest rate increases from 5% to 7% and your portfolios return drops to 12%, how should you help your clients to achieve the same expected return in a?
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