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MariettaO [177]
3 years ago
9

You manage a risky portfolio with an expected rate of return of 17% and a standard deviation of 29%. The T-bill rate is 8%. Your

client chooses to invest 65% of a portfolio in your fund and 35% in an essentially risk-free money market fund. What is the expected return and standard deviation of the rate of return on his portfolio? (Do not round intermediate calculations. Round "Standard deviation" to 1 decimal place.)
Business
1 answer:
Anastasy [175]3 years ago
4 0

Answer:

13.85% and 18.9%

Explanation:

As in this exercise we have a free risk asset we will assume that the t-bill has a standard deviation of 0%, so let´s firts calculate the expected return:

E(r)=r_{1}*w_{1} +r_{2}*w_{2} +....+r_{n}*w_{n}

where E(r) is the expected return, r_{i} is the return of the i asset and w_{i} is the investment in i asset, so applying to this particular case we have:

E(r)=17\%*65\%+8\%*35\%

E(r)=13.85\%

the calculation of standar deviation follows the same logic of the previous formula:

Sigma(r)=29\%*65\%+0\%*35\%

Sigma(r)=18.9\%

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