Problem 5-12

Assume that you manage a risky portfolio with an expected rate of return of 17.9% and a standard deviation of 27.9%. The T-bill rate is 6.5%.

Required:
(a)	Your client chooses to invest 60% of a portfolio in your fund and 40% in a T-bill money market fund. What is the expected return and standard deviation of your client's portfolio? (Round your answers to 1 decimal place. Omit the "%" sign in your response.)

Expected return	%	per year
Standard deviation	%	per year

(b)	Suppose your risky portfolio includes the following investments in the given proportions:

Stock A	30%
Stock B	49%
Stock C	21%

What are the investment proportions of your clients overall portfolio, including the position in T-bills?(Round your answers to 1 decimal place. Omit the "%" sign in your response.)

Security	Investment Proportions
T-Bills		%
Stock A		%
Stock B		%
Stock C		%

(c)	What is the reward-to-volatility ratio ( S ) of your risky portfolio and your client's overall portfolio?(Round your answers to 4 decimal places.)

Your Reward-to-variability ratio
Client's Reward-to-variability ratio