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Your client considers three financial assets: two stock funds (growth and value) and a risk-free...

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Finance

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Your client considers three financial assets: two stock funds (growth and value) and a risk-free asset. In your function as the financial advisor you have done your homework and figured out the following track records: Growth fund Value fund Risk-free asset Expected return 20% 10% 5% Standard deviation 30% 15% The correlation between growth and value funds is -10%. a. Suppose that your client's original portfolio consists of only growth and value funds, with $70,000 invested in the growth fund and $30,000 invested in the value fund. What is the Sharpe ratio of your client's portfolio? b. Create the equity balance sheet of your client's portfolio. c. What reduction in standard deviation could you attain if you advised your client to include the risk-free asset in her portfolio while keeping portfolio's expected rate of return constant (as in part a)? Assume that Sharpe ratio for the CML is 63.12% in this economy? d. How would the equity balance sheet of your client look like now

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