Question
Consider the following information about a risky portfolio that you manage, and a riskfree asset: E(rp) = 12% sp = 15% rt =6%. Your client,
Consider the following information about a risky portfolio that you manage, and a riskfree
asset: E(rp) = 12% sp = 15% rt =6%.
Your client, Miss Gina, wants to invest his total investment budget in your risky Fund and the risk-free asset to provide an expected rate of return on his complete portfolio equal to 9%
i. What proportion of her total investment budget should she invest in the risky portfolio, P, and what proportion in the risk-free asset?
ii. Considering your answer in i) above, wht is the standard deviation of the complete portfolio
iii. Suppose Miss Gina has a risk-aversion index of 2. What is the maximum proportion of her investment budget that should be put in your risky Fund?
iv. Suppose another client, Mr. Keaton, would like to create a portfolio of your risky Fund and the risk-free asset. If his optimal position in the risky Fund is 0.6, what is his risk-aversion index?
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