Question

Assume that you manage a risky portfolio with an expected rate of return of 20% and a standard deviation of 44%. The T-bill rate is 4%.

Your risky portfolio includes the following investments in the given proportions:

Stock A	28	%
Stock B	37	%
Stock C	35	%

Your client decides to invest in your risky portfolio a proportion (y) of his total investment budget with the remainder in a T-bill money market fund so that his overall portfolio will have an expected rate of return of 16%.

a. What is the proportion y? (Round your answer to 3 decimal places.)

Proportion y            

b. What are your client's investment proportions in your three stocks and the T-bill fund? (Round your intermediate calculations and final answers to 2 decimal places.)

Security	Investment   Proportions
T-Bills		%
Stock A		%
Stock B		%
Stock C		%

c. What is the standard deviation of the rate of return on your client's portfolio? (Round your intermediate calculations and final answer to 2 decimal places.)

Standard deviation             % per year

Answer 1