Consider the following information about a risky portfolio that you manage and a risk-free asset: E(rp) = 11%, op = 12%, rj =,2%. Required: a. Your client wants to invest a proportion of her total investment budget in your risky fund to provide an expected rate of return on her overall or complete portfolio equal to 7%. What proportion should she invest in the risky portfolio, P, and what proportion in the risk-free asset? b. What will be the standard deviation of the rate of return on her portfolio? c. Another client wants the highest return possible subject to the constraint that you limit his standard deviation to be no more than 17%. Which client is more risk averse? Complete this question by entering your answers in the tabs below.
Consider the following information about a risky portfolio that you manage and a risk-free asset: E(rp) = 11%, op = 12%, rj =,2%. Required: a. Your client wants to invest a proportion of her total investment budget in your risky fund to provide an expected rate of return on her overall or complete portfolio equal to 7%. What proportion should she invest in the risky portfolio, P, and what proportion in the risk-free asset? b. What will be the standard deviation of the rate of return on her portfolio? c. Another client wants the highest return possible subject to the constraint that you limit his standard deviation to be no more than 17%. Which client is more risk averse? Complete this question by entering your answers in the tabs below.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:Consider the following information about a risky portfolio that you manage and a risk-free asset: E(rp) = 11%, op = 12%, rf =,2%.
Required:
a. Your client wants to invest a proportion of her total investment budget in your risky fund to provide an expected rate of return on
her overall or complete portfolio equal to 7%. What proportion should she invest in the risky portfolio, P, and what proportion in the
risk-free asset?
b. What will be the standard deviation of the rate of return on her portfolio?
c. Another client wants the highest return possible subject to the constraint that you limit his standard deviation to be no more than
17%. Which client is more risk averse?
Complete this question by entering your answers in the tabs below.
Required A Required B
Required C
Your client wants to invest a proportion of her total investment budget in your risky fund to provide an expected rate of return
on her overall or complete portfolio equal to 7%. What proportion should she invest in the risky portfolio, P, and what
proportion in the risk-free asset?
Note: Do not round Intermediate calculations. Round your answers to 2 decimal places.
Risky portfolio
Risk-free asset
%
&
Required D >
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