You estimate that a passive portfolio, that is, one invested in a risky portfolio that mimics...
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You estimate that a passive portfolio, that is, one invested ina risky portfolio that mimics the S&P 500 stock index, yieldsan expected rate of return of 16% with a standard deviation of 25%.You manage an active portfolio with expected return 21% andstandard deviation 32%. The risk-free rate is 8%. Your client'sdegree of risk aversion is A = 1.8.
a. If he chose to invest in the passiveportfolio, what proportion, y, would he select?(Do not round intermediate calculations. Round your answerto 2 decimal places.)
b. What is the fee (percentage of theinvestment in your fund, deducted at the end of the year) that youcan charge to make the client indifferent between your fund and thepassive strategy affected by his capital allocation decision (i.e.,his choice of y)? (Do not round intermediatecalculations. Round your answer to 2 decimal places.)
You estimate that a passive portfolio, that is, one invested ina risky portfolio that mimics the S&P 500 stock index, yieldsan expected rate of return of 16% with a standard deviation of 25%.You manage an active portfolio with expected return 21% andstandard deviation 32%. The risk-free rate is 8%. Your client'sdegree of risk aversion is A = 1.8.
a. If he chose to invest in the passiveportfolio, what proportion, y, would he select?(Do not round intermediate calculations. Round your answerto 2 decimal places.)
b. What is the fee (percentage of theinvestment in your fund, deducted at the end of the year) that youcan charge to make the client indifferent between your fund and thepassive strategy affected by his capital allocation decision (i.e.,his choice of y)? (Do not round intermediatecalculations. Round your answer to 2 decimal places.)
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