In: Finance
Problem 6-26
Suppose that the borrowing rate that your client faces is 12%. Assume that the S&P 500 index has an expected return of 14% and standard deviation of 23%. Also assume that the risk-free rate is rf = 6%. Your fund manages a risky portfolio, with the following details: E(rp) = 13%, σp = 24%.
What is the largest percentage fee that a client who currently is lending (y < 1) will be willing to pay to invest in your fund? What about a client who is borrowing (y > 1)? (Negative values should be indicated by a minus sign. Do not round intermediate calculations. Round your answers to 2 decimal places.)