Hewlett and Martin are partners. Hewlett's capital balance in the partnership is $64,000, and Martin's capital balance $61,000.
1 answer:
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- The expected return = = 12.84 %.
- The standard deviation = 22.8 %.
<u>Explanation</u>:
On the client's portfolio (total investment = 120 K + 80 K = 200 K,
- The expected return
= (12.4 %risk premium + 5.4 %risk free return) (120 K / 200 K) + 5.4 %
(80 K / 200 K)
= 17.8 % 0.6 + 5.4 %
0.4
= 12.84 %.
-
The standard deviation would be = 38 %
0.6 + 0%
= 22.8 %.