Chapter 5 Q3

Assume that you manage a risky portfolio with an expected rate of return of 14% and a standard deviation of 30%. The T-bill rate is 6%

Stock A	24	%
Stock B	32	%
Stock C	44	%

A client prefers to invest in your portfolio a proportion (y) that maximizes the expected return on the overall portfolio subject to the constraint that the overall portfolio's standard deviation will not exceed 20%.

a. What is the investment proportion, y? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Investment proportion y %

b. What is the expected rate of return on the overall portfolio? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Rate of return %

Assume that you manage a risky portfolio with an expected rate of return of 14% and a standard deviation of 30%. The T-bill rate is 6% Stock A Stock B Stock C 24 % 32 % 44 % A client prefers to invest in your portfolio a proportion (y) that maximizes the expected return on the overall portfolio subject to the constraint that the overall portfolio's standard deviation will not exceed 20%. a. What is the investment proportion, y? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Investment proportion y b. What is the expected rate of return on the overall portfolio? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Rate of return