The important part is E. I. You manage a risky portfolio with expected rate of r
ID: 2786648 • Letter: T
Question
The important part is E.
I. You manage a risky portfolio with expected rate of return of 18% and standard deviation of 28%. The T-bill is 8%. You client choose to invest 70% of a portfolio in your fund and 30% in a T bill money market fund. (20 pts) a. What is the expected value of the client's portfolio? (3pts) b. What is the standard deviation of the client's portfolio? (3pts) What is the Sharpe ratio of your risky asset? (3pts) What is the Sharpe ratio of your client's portfolio? (3pts) c. d. Draw the CAL of your portfolio on an expected-standard deviation diagram. What is the slope of the CAL? What is the intercept of the CAL? Show the position of your client on your fund's CAL. (8pts) e.Explanation / Answer
a. Expected Return on Portfolio = (0.30 x 8%) + (0.7 x 18%) = 15% per year
b. Standard Deviation of Portfolio = 0.7 x 28% = 19.6%
c. Sharpe Ratio of Risky Asset = (18% - 8%)/(28%) = 0.36
d. Sharpe Ratio of Portfolio = (15% - 8%)/(19.6%) = 0.36
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