Suppose you manage a risky portfolio with an expected rate of return of 10% and...
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Suppose you manage a risky portfolio with an expected rate of return of 10% and a standard deviation of 20%. The T-bill rate is 2%. Also, suppose your risky portfolio includes the following assets in the given proportions:
| Stock A | 10% |
| Stock B | 40% |
| Stock C | 20% |
| Stock D | 30% |
Suppose your client comes to you and asks you to help her create a portfolio with expected return of 20%.
1. What fraction (y) will she need to invest in your risky portfolio to obtain this expected return?
2. What are the investment proportions of the complete portfolio?
yT bill =
yA=
yB =
yC =
yD =
3. Explain how you will allocate your assets based on the weights above ?
4. What is the standard deviation of the rate of return on your clients portfolio?
P =
5. What is the Sharpe ratio of your clients portfolio?
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