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%

Suppose that your risky portfolio includes the following investments in the given pro- portions: Stock A: 25%; Stock B: 32%; Stock C: 43%

a) 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?

(i) What are your client's investment proportions in your three stocks and the T bills?

(iii) What is the standard deviation of the rate of return on your client's portfolio?

b) Suppose that your client prefers to invest in your fund a proportion y that maximizes the expected return on the complete portfolio subiect to the constraint that the complete portfolio's 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?