Problem 5-13 Assume that you manage a risky portfolio with an expected rate of return of...

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w1	Weight of investment in risky portfolio	y
w2	Weight of investment in T-bill	1-y
R1	Expected Return of risky portfolio	12%
R2	Expected Return of T-Bill	4%
	Expected Return of Client =w1R1+w2R2
	Expected Return =10%
	y12+(1-y)4=10
	12y-4y+4=10
	8y=10-4=6
	y=6/8=	0.75
w1	Weight of investment in risky portfolio	0.75
w2	Weight of investment in T-bill	0.25	(1-0.75)
	Proportion of y=0.75=75%
	Proportion of investment in T bill fund=	25%
	Proportion of investment in Stock A	23.25%	(0.75*31)	%
	Proportion of investment in Stock B	23.25%	(0.75*31)	%
	Proportion of investment in Stock C	28.50%	(0.75*38)	%

	Variance of Client Portfolio Return:
	(w1^2)((Portfolio Standard Deviation)^2)+(w2^2)((T-bill Standard Deviation)^2)=2w1w2 Covariance (Portfolio,T-bill)

	T - Standard Deviation=0
	Covariance(Portfolio, T-bill)=0
	Variance of Client Portfolio Return:
	(w1^2)*((Portfolio Standard Deviatio)^2)
	(0.75^2)*(47^2)%%=		1242.563	%%
	Standard Deviation =Square Root (Variance)
	Standard Deviation =(1242.563^(1/2))		35.25	%

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