Tom is your client. He has 64% of his portfolio invested in the market and the...

Tom is your client. He has 64% of his portfolio invested in the market and the rest is invested in T-bills (risk-free). T-bills offer a rate of 1.8%, while the expected return on the market is 8.2% and the volatility of the market is 15.7%. What is the expected return of Tom’s portfolio?

{Give your answer as a percentage with 2 decimals, e.g., if the result of your calculations is 0.0345224 (or 3.45224%) , enter 3.45 as your answer.}

Solutions

Expert Solution

Calculation of Expected Return on Tom's Portfolio :

Expected Return = (Return of Risk free * Weight of Risk Free) + (Return from Market * Weight of Market)

= [1.8% * (1 - 0.64)] + [8.2% * 0.64]

= 0.648 % + 5.248%

= 5.896% or 5.90%

jeff jeffy answered 2 years ago

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