Question

You manage a risky portfolio with an expected rate of return of 21% and a standard deviation of 32%. The T-bill rate is 8%. Your client chooses to invest 65% of a portfolio in your fund and 35% in a T-bill money market fund. What are the investment proportions of your client’s overall portfolio, including the position in T-bills?

Answer 1

Answer: Treasury Bills - 35%

Stock A - 17.55%

Stock B - 23.4%

Stock C - 24.05%

Explanation:

Hello.

The question was a tad incomplete so I attached the relevant portion from a similar question as a guide.

The client already has 35% invested in T- bills so that would be the T- bill proportion.

Now we need the proportions of the other 3 stocks.

Stock A will be,

= 0.65 (proportion of total portfolio in the fund) * 0.27 (proportion of stock in fund)

= 0.1755

= 17.55% of total portfolio

Stock B will be,

= 0.65 (proportion of total portfolio in the fund) * 0.36 (proportion of stock in fund)

= 0.234

= 23.4% of total portfolio

Stock C will be,

= 0.65 (proportion of total portfolio in the fund) * 0.37 (proportion of stock in fund)

= 0.2405

= 24.05% of the total portfolio.

To check the figures we can add them up.

That would be

= 0.35 + 0.2405 + 0.234 + 0.1755

= 1

So those are the correct proportions of your client’s overall portfolio, including the position in T-bills.