Question
In: Finance
Assume you manage a risky portfolio with an expected rate of return 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 expected return of the overall portfolio? convert your answer to percentages and round to two decimal places
Solutions
Expert Solution
Given : Expected rate of return =8%
standard deviation= 18%
T-bill rate = 3%
Maximum portfolio's deviation required = 12 %
So, proportion of risky portfolio y = 12/18 = 66.66%
Expected return of the complete portfolio = 3% + (8% - 3%) * 66.66%
= 0.03 (0.08-0.03) *0.6666
= 0.03( 0.05)* 0.6666
=0.0633*100= 6.33%
jeff jeffy answered 2 years agoRelated Solutions
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