Assume that you manage a risky portfolio with an expected rate of return of 14% and a standard deviation of 30%. The Tbill rate is 6%. Your client chooses to invest 85% of a portfolio in your fund and 15% in a Tbill money market fund.
a. What is the expected return and standard
deviation of your client's portfolio? (Round your answers
to 2 decimal places.)
Expected return  % per year 
Standard deviation  % per year 
b. Suppose your risky portfolio includes the
following investments in the given proportions:
Stock A  24% 
Stock B  32% 
Stock C  44% 
What are the investment proportions of your client’s overall portfolio, including the position in Tbills? (Round your answers to 2 decimal places.)
Security 
Investment Proportions 

TBills  %  
Stock A  %  
Stock B  %  
Stock C  %  
c. What is the rewardtovolatility ratio (S) of your risky portfolio and your client's overall portfolio? (Round your answers to 4 decimal places.)
RewardtoVolatility Ratio  
Risky portfolio  
Client’s overall portfolio 
a) Expected Return = W1 * R1 + W2 * R2
Expected return = (85% * 14%) + (15% * 6%) = 11.9% + 0.9% = 12.80%
Standard deviation of portfolio is calculated using the mathematical relation:
Correlation coefficienct between T bond fund and any portfolio = 0. Also, standard deviation of Tbonds is 0.
Standard deviation = 25.5%
b) Proportion in client's portoflio, where 15% is for Tbill fund.
Tbills: 15%
Stock A: 85% of portolio * 24% = 20.40%
Stock B: 85% of portolio * 32% = 27.20%
Stock C: 85% of portolio * 44% = 37.40%
c) Rewards to Volatility ratio, also known as, Sharpe's ratio is mathematically written as:
Risk free rate = 6% (return on Tbills)
Risky portfolio = (14%  6%)/30% = 0.27
Client portfolio = (12.80%  6%)/25.5% = 0.27
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