Question
Using the following information to answer the next three questions: You manage equity fund with an expected risk premium of 12% and a standard deviation
Using the following information to answer the next three questions: You manage equity fund with an expected risk premium of 12% and a standard deviation of 14%. The rate on T-bill is 4%. Your client chooses to invest $80,000 her portfolio in your equity fund and $20,000 in T-bill money market fund
1) What are the expected return and standard deviation of return on your client's portfolio?
|
| 12.75% and 11.20% |
|
| 16.00% and 13.60% |
|
| 13.60% and 11.20% |
|
| 15.40% and 12.25% |
2) What is the reward-to-volatility ratio (Sharpe Ratio) for this equity fund?
|
| 0.8211 |
|
| 0.7710 |
|
| 0.8991 |
|
| 0.8571 |
Suppose your risky portfolio includes the following investments in the given proportions: Stock A: 25% Stock B: 35% Stock C: 40% 3) What are the investment proportions of your client's overall portfolio, including the position in T-bills?
|
| 6% in Stock A, 32% in Stock B, 42% in Stock C, 20% in T-Bill |
|
| 20% in Stock A, 28% in Stock B, 32% in Stock C, 20% in T-Bill |
|
| 25% in Stock A, 35% in Stock B, 40% in Stock C, 20% in T-Bill |
|
| 5% in Stock A, 7% in Stock B, 8% in Stock C, 80% in T-Bill |
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Intermediate Accounting
Authors: Donald Kieso, Jerry Weygandt, Terry Warfield, Nicola Young,
10th Canadian Edition, Volume 1
978-0176509736
