Your risky portfolio includes the following investments in the given proportions

Question

Your risky portfolio includes the following investments in the given proportions:

Your client decides to invest in your risky portfolio a proportion (y) of his total investment budget with the remainder in a T-bill money market fund so that his overall portfolio will have an expected rate of return of 21%.

What are your client's investment proportions in your three stocks and the T-bill fund? (Round your intermediate calculations and final answers to 2 decimal places.)

What is the standard deviation of the rate of return on your client's portfolio? (Round your intermediate calculations and final answer to 2 decimal places.)

Your risky portfolio includes the following investments in the given proportions:

Explanation / Answer

(a) Mean return on portfolio = Rf + (Rp - Rf)y

= 7% + (17% - 7%)y = 7% + 10%y

If the mean of the portfolio is equal to 15%, then solving for y we will get:

15% = 7% +10%y => y = (15% - 7%)/10% => y = 0.8

Thus, in order to obtain a mean return of 15%, the client must invest 80% of total funds in the

risky portfolio and 20% in Treasure bills.

(b) Investment proportions of the client

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