You manage a fund with an expected rate of return of 18% and a standard deviation of 28%. The T-bill rate (risk-free rate) is 8%.

A: Suppose that your risky portfolio includes the following investments in the given proportions: Stock A: 25%; Stock B: 32%; Stock C: 43%. What are the investment proportions of your clients overall portfolio, including the position in T-bills?

B: Suppose that your client decides to invest in your portfolio a proportion y of the total investment budget so that the overall portfolio will have an expected rate of return of 16%.

(i) What is the proportion y?

(ii) What are your clients investment proportions in your three stocks and the T-bills?

(iii) What is the standard deviation of the rate of return on your clients portfolio?

C: Suppose that your client prefers to invest in your fund a proportion y that maximizes the expected return on the complete portfolio subject to the constraint that the complete portfolios standard deviation will not exceed 18%.

(i) What is the investment proportion, y?

(ii) What is the expected rate of return on the complete portfolio?