f 25%. The You manage a portfolio with an expected retu of 20% and a standard bi
ID: 2651940 • Letter: F
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f 25%. The You manage a portfolio with an expected retu of 20% and a standard bill Rate is 5% 1. What is the Risk Premium and Sharpe measure of your portfolio? investments 2. If a client decides to invest 60% in your portfolio and 40%in absolutely safe What are his expected return and a standard deviation? portfolio's What is his reward to volatility ratio? What is the difference between your 4, Sharpe measure and his reward to volatility measure? 10% f stock suppose your Risky folio contains of 455 of stock x 45% of stock Y and what are the investment proportions of your clients overall portfolio? 5. if Mr. Benevolent decides to invest in your portfolio and insists that he only wants an expected return of 15%, what proportion his money should he invest in your portfolio of and what proportion in the risk free asset? What is the proportion ofstockXY, and Z in his overall portfolio? What is the standard deviation of his portfolio? 6. If Ms. Safety decides to invest in your portfolio and insists she only wants a standard that deviation of 20%, what proportion of her money should she invest in your portfolio and what proportion in the risk free asset? What is the proportion of stock x Y, and z in her overall portfolio? What is the expected return of her portfolio? 7. If Mr. Complacent decides to invest in the S&P; 500 index ETF portfolio with an expected return of 18% and a standard deviation of 20%. Is this a superior strategy to investing in e-Your fund? Defend your answer with a comparative analysis.Explanation / Answer
1. Risk premium= Expected return - risk free rate= 20%- 5%= 15%
Sharpe measure= Risk premium/ standard devaition= 0.15/ 0.25= 0.6= 60%
2. Expected return= 0.60* 20% + 0.40* 5%= 0.12+ .02= .14= 14%
standard deviation= 0.60* 25%= 0.15= 15%
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