Question
You manage a risky portfolio with an expected rate of return of 18.00% The standard deviation of returns is 28.00% 17 The T-bill rate is
| You manage arisky portfolio with an expected rate of return of | 18.00% |
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| The standard deviation of returns is | 28.00% |
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17 | The T-bill rate is | 8.00% |
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18 | Suppose that your client decides to invest in your portfolio a proportion [y] of the total investment budget | |||
19 | so that the overall portfolio will have an expected rate of return of | 16.00% |
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20 | Your risky portfolio includes the following investment in the given proportions: |
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21 | Stock A | 25.00% |
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22 | Stock B | 32.00% |
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23 | Stock C | 43.00% |
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24 |
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25 | Refer to the model | E(rc) = rf + [E(rp) - rf]*y |
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26 | Solve for y |
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27 |
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28 | In order to have an Expected Portfolio Return of 16%, What proportion must your client invest |
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29 | in Risky assets of this portfolio? This is [y]. |
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30 | y = [E(rc) - rf] / [E(rp) - rf] |
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