Assume you manage a risky portfolio with an expected rate of return of 14% and a

standard deviation of 21%. The T?bill rate is 5%.

a. Your client chooses to invest 65% of his portfolio in your fund and 35% in a

T?bill money market fund. What is the expected return and standard

deviation of your client?s portfolio?

b. Suppose your risky portfolio consists of the following stocks in the following

proportions:

Stock Proportion

A 23%

B 42%

C 35%

What are the investment proportions of these stocks in your client?s overall

portfolio, including the position in T?bills?

c. What is the reward?to?volatility ratio (or Sharpe ratio) of your risky

portfolio?

d. Draw the capital allocation line (CAL) of your portfolio on an expected return

vs. standard deviation diagram. What is the slope of the CAL? Show the

position of your client on the graph.

e. On which side of the CAL would the portfolio of an investor who is more risk

averse than your client lie?

f. Suppose another client decides to invest in your portfolio at a proportion ????

of his total investment budget so that his overall portfolio will have an

expected rate of return 12%. What is ????? What is the standard deviation of

this client?s portfolio?

g. Now suppose your client decides to invest in your portfolio at a proportion ????

that maximizes the expected return of his overall portfolio subject to the

constraint that the portfolio?s standard deviation does not exceed 15%. What

is w? What is the expected return of your client?s portfolio?

#8. Assume you manage a risky portfolio with an expected rate of return of 14% and a standard deviation of 21%. The Tbill rate is 5%. a. Your client chooses to invest 65% of his portfolio in your fund and 35% in a Thill money market fund. What is the expected return and standard deviation ofyour cliean portfolio? b. Suppose your risky portfolio consists of the following stocks in the following proportions: A 23% B 42% C 35% What are the investment proportions of these stocks in your client's overall portfolio, including the position in Thills'.' c. What is the rewardtovolatility ratio [or Sharpe ratio] of your risky portfolio? d. Draw the capital allocation line [CAL] ofyour portfolio on an expected return vs. standard deviation diagram. What is the slope of the CAL? Show the position of your client on the graph. e. On which side of the GAL would the portfolio of an investor who is more risk averse than your client lie? f. Suppose another client detides to invest in your portfolio at a proportion w of his total investment budget so that his overall portfolio will have an expected rate of return 12%. What is w? "That is the standard deviation of this client's portfolio? g. Now suppose your client decides to invest in your portfolio at a proportion w that maximizes the expected return of his overall portfolio subject to the constraint that the portfolio's standard deviation does not exceed 1 5%. What is w? What is the expected return ofyour client's portfolio