Question

You manage a risky portfolio with an expected rate of return of 20% and a standard deviation of 36%. The T-bill rate is 5%. Your client chooses to invest 60% of a portfolio in your fund and 40% in a T-bill money market fund.

Suppose that your risky portfolio includes the following investments in the given proportions:

Stock A	35	%
Stock B	36	%
Stock C	29	%

What are the investment proportions of your client’s overall portfolio, including the position in T-bills? (Round your answers to 1 decimal place.)

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

Answer 1

Answer:

Your risky portfolio has following investments in the given proportions

Stocks Proportion

Stock A 35%

Stock B 36%

Stock C 29%

Your client chooses to invest 60% of risky portfolio in your fund and 40% in a T-bill money market fund.

Investment proportions of your client’s overall portfolio, including the position in T-bills:

T - Bills = 40%

Stock A = 60% * 35% = 21%

Stock B = 60% * 36% = 21.6%

Stock C = 60% * 29% = 17.4%

Hence:

Investment

Proportions

T-Bills	40.0	%
Stock A	21.0	%
Stock B	21.6	%
Stock C	17.4	%