Question
You are a Morgan Stanley portfolio manager of a risky portfolio with an expected rate of return of 17% and a standard deviation of 28%.
You are a Morgan Stanley portfolio manager of a risky portfolio with an expected rate of return of 17% and a standard deviation of 28%. The T-bill rate is 4%. Suppose your client decides to invest in your risky portfolio a proportion (y) of his total investment budget so that his overall portfolio will have an expected return of 10%.
Please choose all correct answers related to the following questions.
a. What is the proportion y? b. What will be the standard deviation of your clients portfolio? c. What is the Sharpe ratio of your portfolio?d) Suppose your client is wondering if he should switch his money in your fund to a passive portfolio invested to mimic the S&P 500 stock index yields an expected rate of return of 9% with a standard deviation of 25%. Show your client the maximum fee you could charge (as a percent of the investment in your fund deducted at the end of the year) that would still leave him at least as well off investing in your fund as in the passive one. (Hint: The fee will lower the slope of your clients CAL by reducing the expected return net of the fee.) at is the minimum-variance portfolio proportion in stock fund?
Please choose all correct answers. Please note that each incorrect answer will reduce the score by 10%.
1. | the answer to part c is 42.8% | |
2. | The answer to part b is 12.92% | |
3. | The answer to part d is 6.4% | |
4. | the answer to part c is 56.43% | |
5. | The answer to part a is 46.15% | |
6. | the answer to part c is 46.43% | |
7. | The answer to part d is 7.4% | |
8. | The answer to part a is 50% | |
9. | The answer to part d is 8.4% | |
10. | The answer to part b is 14% | |
11. | The answer to part a is 66.15% | |
12. | The answer to part b is 14.92% |
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started