Your client chooses to invest 70% of a portfolio in your fund and 30% in a T-bill
Question:
Your client chooses to invest 70% of a portfolio in your fund and 30% in a T-bill money market fund.
a. What is the expected return and standard deviation of your client's portfolio?
b. Suppose your risky portfolio includes the following investments in the given proportions:
Stock A ..................... 27%
Stock B ..................... 33%
Stock C ..................... 40%
What are the investment proportions of your client's overall portfolio, including the position in T-bills?
c. What is the Sharpe ratio (S) of your risky portfolio and your client's overall portfolio?
d. Draw the CAL of your portfolio on an expected return/standard deviation diagram. What is the slope of the CAL? Show the position of your client on your fund's CAL.
Expected ReturnThe expected return is the profit or loss an investor anticipates on an investment that has known or anticipated rates of return (RoR). It is calculated by multiplying potential outcomes by the chances of them occurring and then totaling these... Portfolio
A portfolio is a grouping of financial assets such as stocks, bonds, commodities, currencies and cash equivalents, as well as their fund counterparts, including mutual, exchange-traded and closed funds. A portfolio can also consist of non-publicly...
Step by Step Answer:
a Allocating 70 of the capital in the risky portfolio P and 30 in riskfree asset the client has an e...View the full answer
Essentials of Investments
ISBN: 978-0077835422
10th edition
Authors: Zvi Bodie, Alex Kane, Alan J. Marcus
