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Assume you manage a risky portfolio with an expected rate ofreturn of 8% and a...

Assume you manage a risky portfolio with an expected rate of return of 8% and a standard deviation of 18%. The T-bill rate is 3%. Suppose your client prefers to invest in your portfolio a proportion that maximizes the expected return of the overall portfolio subject to the constraint that the overall portfolio's standard deviation will note exceed 12%. What is the investment proportion in your fund? convert your answer to percentages and round to two decimal places

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Expert Solution

present standard deviation is 18%

target standrad deviation is 12%

cilent prefer to reduce risk by investing in risk free rate

weight of risky asset = target s.d/ present s.d

=12/18

=0.66.67

=66.67%

proportion of risk free return =1 - weight of risky asset

=1-0.67

=0.3333

=33.33%

jeff jeffy answered 2 years ago
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