Question

Q2: A: Suppose that you manage a risky portfolio with an expected rate of return of 12% and a standard deviation of 25%. The T-bill rate is 3%. Your client chooses to invest 60% of a portfolio in your fund and 40% in the T-bills. What is the slope of the Capial Allocation Line (CAL)? 0.36

B: Suppose the same client in the previous problem decides to invest in your risky portfolio a proportion (y) of his total investment budget so that his overall portfolio will have an expected rate of return of 10%. 0.77

C: Given the allocation y as derived in the previous problem, what is the standard deviation of the rate of return on your client's portfolio?

D: Suppose now the same client as in the previous problem prefers to invest in your portfolio a proportion (y) that maximizes the expected return on the overall portfolio subject to the constraint that the overall portfolio's standard deviation will not exceed 15%. What is the maximum investment proportion, y, for the risky portfolio?

E: Given the allocation y derived in Question#7, what is the expected rate of return on the overall portfolio?

Answer 1

SEE THE IMAGE. ANY DOUBTS, FEEL FREE TO ASK. THUMBS UP PLEASE

Home nert Page Layout Formulas Data Review View dd-Ins s Cut ta copy ▼ Σ AutoSum ー E " ゴWrap Text в 1 프 . Ej-., Δ. : rーー 逻锂函Merge & Center. $, % , 弼,8 Conditional Format eCell Insert Delete Format Sort &Find & 2 ClearFe Select Edting Format Painter Formatting, as Table w styles. ▼ ㆆ ▼ Clipboard Alignment Number Cells LM100 LM LN LO LQ LT LU LW LP E(r)-12% LR LS LV rf-3% 6-25% 84 85 86 87 E(r)-rf/ 6 (0.12-0.03)/0.25 slope of CAL- 0.36 89 90 91 92 93 94 95 96 97 98 EXPECTED RETURN-rf(E(r) rf)(y) 10%-3% + (12%-3%)*(y) 796-996(y) 77 78% STANDARD DEVIATION-y"6-0-7778"25% 19.44 % (INTERMEDIATE ROUNDING NOT DONE) STANDARD DEVIATION-y"6 y* 25% 1596- 0.6 100 101 102 4KE CAPM UTILITY, SHARPE, betabond covexity DGM port future INDEX INTL CAP BUD EXPECTED RETURN = rf + (E(r)-rf)*(y) EXPECTED RETURN-3% + (12%-3%)*(0.6)- 8.40% SING PV, FV, ANNUITYDIR cleanYIELD bond stru WACCRESI ex d 130% 12:52 24-01-2019