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You estimate that a passive portfolio invested to mimic the S&P 500 stock index yields an...

You estimate that a passive portfolio invested to mimic the S&P 500 stock index yields an expected rate of return of 10% with a standard deviation of 19%. Assume you manage a risky portfolio with an expected rate of return of 12% and a standard deviation of 24%. The T-bill rate is 5%. Your client would like to switch an 80% allocation in your portfolio to an 80% allocation in the stock market index. What would the standard deviation of an 80% allocation to your portfolio be? Convert your answer to a percentage and round to two decimal places.

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Expert Solution

the standard deviation of an 80% allocation to your portfolio = w x standard deviation of the risky portfolio = 80% x 24% = 19.20%

jeff jeffy answered 2 years ago
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