Question

You manage a risky portfolio with an expected rate of return of 18% and a standard deviation of 36%. The T-bill rate is 6%. Your risky portfolio includes the following investments in the given proportions: Stock A Stock B Stock C 279 358 388 Suppose that your client decides to invest in your portfolio a proportion y of the total investment budget so that the overall portfolio will have an expected rate of return of 15%. a. What is the proportion y? (Round your answer to the nearest whole number.) Proportion y

Answer 1

Expected return Lun Of Portfolio - 18%, , of portfolio T bill rate 6% omer should be 15% The investment of customer should Hence 18% 4+ (1-4) 6% =15% 0.184 +0.06 0.0by = 0.15 10 olay= 0.09 y= 0.09 = 75% 0.12 6 100"/ The poopootion of Pnvestment will be pm T- Billo - 1-y = 1-0.75 -0.25 -25%. Stock A = 75%* 27! - 20.25% - Stock B 1.75% - 26.25% Stock C : 75% * 38%. 28.5% Standard deviation of the portfolio: The standard deviation of T bill will be zuo 100% © Hence the standard deviation of portfolio will be Vw x6 + wrx 6 + 2 x W x ₂ x8x6,26 (0.7532 (1875+ 0x0.25 + 2x0 - 0 ABXorig 0.75x36% 2 27% standard deviation of portfolio is 27% The