Question

Assume that you manage a risky portfolio with an expected rate of return of 17% 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	27	%
Stock B	35	%
Stock C	38	%

  

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. Omit the "%" sign in your response.)

  

Proportion y

% ?

  

b.	What are your client’s investment proportions in your three stocks and the T-bill fund? (Do not round intermediate calculations. Round your answers to 2 decimal place. Omit the "%" sign in your response.)

      

	Investment Proportions
T-Bills		% ?
Stock A		% ?
Stock B		% ?
Stock C		% ?

     

c.	What is the standard deviation of the rate of return on your client’s portfolio? (Do not round intermediate calculations. Round your answer to 2 decimal place. Omit the "%" sign in your response.)

  

Standard deviation

% ?

Answer 1

Please refer to the below spreadsheet for calculations and answers. Cell reference also provided.

Cell reference -

Please note: the value of y is rounded to the whole number only for part-a; it is not rounded while calculating other figures.