Based on your answers above, which client is more risk averse
Part a
Let x% of the client's portfolio be allocated to the risky portfolio, then (1-x)% will be in the T-bills. The total return will be the weighted average of these which she wants to be equal to 7%. So we can write
x*9% + (1-x)*3% = 7%
0.09x+ 0.03 -0.03x = 0.07
0.06x = 0.04
x =0.04/0.06
=0.6667
So she should allocate 66.67 % of her portfolio to the risky portfolio and 33.33% to T-bills.
Standard deviation: T-bills have fixed returns, so their standard deviation can be considered zero. So, in this case, the standard deviation of her portfolio will simply be the standard deviation of risky portfolio times weight of it in her portfolio
So Standard deviation = 0.6667 * 12.5% = 8.33%
Part b
To get the highest return the standard deviation has to be the highest of her range which is 9%. If we represent the weight of risky portfolio by y then we can write:
y*12.5% = 9%
y=9%/12.5%
=72%
So she should allocate 72% to the risky portfolio and 28% to T-bills.
Based on this analysis, we can say that the first client is more risk-averse as she is opting for a portfolio with low standard deviation which implies low risk.
You manage a risky portfolio that has an expected return of 9% and a standard deviation...
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...
Problem 4 (15 marks). Consider the following information about a risky portfolio that you manage, and a risk-free asset: E(Tp) = 11%, p = 15%, ry = 5%. a) Your client wants to invest a proportion of her total investment budget in your risky fund to provide an expected rate of return on her overall or complete portfolio equal to 8%. What proportion should she invest in the risky portfolio, P, and what proportion in the risk-free asset? (5 marks]...
You manage a risky portfolio with an expected rate of return of 19% and a standard deviation of 34%. The T-bill rate is 8%. 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 portfolio’s standard deviation will not exceed 19%. a. What is the investment proportion, y? (Round your answer to 2 decimal places.) b. What is the expected rate...
You manage a risky portfolio with an expected rate of return of 18% and a standard deviation of 29%. The T-bill rate is 5%. 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 portfolio's standard deviation will not exceed 18%. a. What is the investment proportion, y? (Round your answer to 2 decimal places.) Investment proportion y b. What is...
You manage a risky portfolio with an expected rate of return of 18% and a standard deviation of 31%. The T-bill rate is 4%. 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 portfolio’s standard deviation will not exceed 18%. a. What is the investment proportion, y? (Round your answer to 2 decimal places.) b. What is the expected rate...
Assume that you manage a risky portfolio with an expected rate of return of 17% and a standard deviation of 27%. The T-bill rate is 7%. Your risky portfolio includes the following investments in the given proportions: Stock A 27% Stock B 33% Stock C 40% Your client decides to invest in your risky portfolio a proportion (y) of his total investment budget with the remainder in a T-bill money market fund so that his overall portfolio will have an...
3) Assume that you manage a risky portfolio with an expected rate of return of 14% and standard deviation of 19%. The risk-free rate rate on a Treasury-bill is 6%. a. Your client chooses to invest 60% of a portfolio in your fund and 40% in a risk-free T-bill money market fund. What is the expected return and standard deviation of your client's portfolio? b. Suppose another investor decides to invest in your risky portfolio a proportion (w) of his...
Check Assume that you manage a risky portfolio with an expected rate of return of 15% and a standard deviation of 31%. The T-bill rate is 5% Your risky portfolio includes the following investments in the given proportions: 125 points Stock A Stock 8 Stock C Your client decides to invest in your risky portfolio a proportion of his total investment budget with the remainder in a T-bill money market fund so that his overall portfolio will have an expected...
You manage a risky portfolio with an expected rate of return of 17%and a standard deviation of 28%. The T-bill rate is 7%.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 portfolio's standard deviation will not exceed 17%.a. What is the investment proportion, y ? (Round your answer to 2 decimal places.)b. What is the expected rate of return on...
Assume that you manage a risky portfolio with an expected rate of return of 14% and a standard deviation of 30%. The T-bill rate is 6%. Your risky portfolio includes the following investments in the given proportions: Stock A Stock B Stock C 24% 32 44 Your client decides to invest in your risky portfolio a proportion (1) of his total investment budget with the remainder in a T-bill money market fund so that his overall portfolio will have an...