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  3. 14. a. standard deviation of the complete portfoli

14. a. Standard deviation of the complete portfolio = c = y x 0.27 If...

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14. a. Standard deviation of the complete portfolio = c = y x 0.27 If the client wants the standard deviation to be equal or less than 20%, then: y = (0.20/0.27) = 0.7407 = 74.07% He should invest, at most, 74.07% in the risky fund. b. E(rc) = r, + y * [E(ru) r.] = 0.07 +0.7407 x 0.10 = 0.1441 or 14.41% 14. a. Standard deviation of the complete portfolio = c = y x 0.27 If the client wants the standard deviation to be equal or less than 20%, then: y = (0.20/0.27) = 0.7407 = 74.07% He should invest, at most, 74.07% in the risky fund. b. E(rc) = r, + y * [E(ru) r.] = 0.07 +0.7407 x 0.10 = 0.1441 or 14.41%

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