Suppose that the borrowing rate that your client faces is 9%. Assume that the S&P 500...

Suppose that the borrowing rate that your client faces is 9%. Assume that the S&P 500 index has an expected return of 14% and standard deviation of 21%. Also assume that the risk-free rate is r_f = 6%. Your fund manages a risky portfolio, with the following details: E(r_p) = 11%, σ_p = 17%.

1. 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.)

Y < 1
Y > 1

Expert Solution

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jeff jeffy answered 1 year ago

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