Assume you manage a risky portfolio with an expected rate of return of 12% and a...

Assume you manage a risky portfolio with an expected rate of return of 12% and a standard deviation of 21%. The T-bill rate is 3%. Your client decides to invest in your risky portfolio a proportion (y) of her total investment budget so that her overall portfolio will have an expected rate of return of 8%. What is the proportion of y? Convert your answer to percentages with two decimal points

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Expert Solution

Expected rate of return =8%
Weight of Risky Portfolio*Return of Risky Portfolio + weight of Risk free Asset*Return of Risk free asset
8% =y*12%+(1-y)*3%
Proportion of Y=(8%-3%)/(12%-3%) =55.56%

jeff jeffy answered 2 years ago

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