Question

Intro Suppose that you manage a portfolio of risky assets with a standard deviation of 27% and an expected return of 15%. Your portfolio consists of the following investments: Type Stock A Stock B Stock C Stock D Weight 29% 17% 12% 42% The Treasury bill rate is 9%. An investor wants to invest a proportion of their investment budget in the T-bill and the remaining proportion in your fund. Part 1 |_ Attempt 3/5 for 8 pts. What proportion of the investor's money should be invested in your fund of risky assets in order to achieve an overall expected return of 17%? 2+ decimals Submit

answers in decimals please

Answer 1

expected return = Wp * Ep + Wt * Et

where,

Wp and Wt = weights of fund and T bill

Ep and Et = expected returns of portfolio fund and t bill

Wp + Wt = 1

so Wt = 1 - Wp

we want an expected return of 17%

so Wp * 15 + (1 - Wp) * 9 = 17%

6 Wp = 8

Wp = 8 / 6 = 1.333 or 133.33%

it means invest 133.33333% in portfolio by shorting 33.33333% of T bills

so answer for Part -1 is 133.33333%

stock B weight = 1.33333 x 0.17 = 0.226666 or 22.6666%

so answer for Part 2 is 22.6666%