Question

You manage an equity fund with an expected risk premium of 12.6%
and a standard deviation of 40%. The rate on Treasury bills is
6.4%. Your client chooses to invest $75,000 of her portfolio in
your eq50uity fund and $75,000 in a T-bill money market fund. What
is the expected return and standard deviation of return on your
client’s portfolio? **(Round your answers to 2 decimal
places.)**

**What does the expected return equal (%)?**

**What does the standard deviaiton equal
(%)?**

Answer #1

Total investment : 75000+75000 = 150000

Return on equity =risk free rate +risk premium

= 6.4 +12.6

= 19%

Expected return : [19*75000/150000]+[6.4*75000/150000]

= 9.5+ 3.2

= 12.70%

standard deviation of portfolio = SD of equity *weight of equity

= 40 *75000/150000

= 20%

**as treasury bill is risk free security.

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