You manage a risky portfolio with an expected rate of return of 18% and a standard deviation of 36%. The T-bill rate is 6%. Your risky portfolio includes the following investments in the given proportions: Stock A 278 Stock B 35% Stock C 38% Suppose that your client decides to invest in your portfolio a proportion y of the total investment budget so that the overall portfolio will have an expected rate of return of 15%. a. What is the proportion y? (Round your answer to the nearest whole number.) Proportion y % b. What are your client's investment proportions in your three stocks and the T-bill fund? (Do not round intermediate calculations. Round your answers to 2 decimal places.) Investment Proportions T-Bills % Stock A % Stock B Stock C % c. What is the standard deviation of the rate of return on your client's portfolio? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Standard deviation %

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
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**Portfolio Management Exercise**

You manage a risky portfolio with an expected rate of return of 18% and a standard deviation of 36%. The T-bill rate is 6%.

Your risky portfolio includes the following investments in the given proportions:

- **Stock A:** 27%
- **Stock B:** 35%
- **Stock C:** 38%

---

Suppose that your client decides to invest in your portfolio a proportion \( y \) of the total investment budget so that the overall portfolio will have an expected rate of return of 15%.

**a. What is the proportion \( y \)?** *(Round your answer to the nearest whole number.)*

- **Proportion \( y \):** [Input Box] %

---

**b. What are your client’s investment proportions in your three stocks and the T-bill fund?** *(Do not round intermediate calculations. Round your answers to 2 decimal places.)*

|                           | **Investment Proportions** |
|---------------------------|----------------------------|
| **T-Bills**               | [Input Box] %              |
| **Stock A**               | [Input Box] %              |
| **Stock B**               | [Input Box] %              |
| **Stock C**               | [Input Box] %              |

---

**c. What is the standard deviation of the rate of return on your client’s portfolio?** *(Do not round intermediate calculations. Round your answer to 2 decimal places.)*

- **Standard deviation:** [Input Box] %
Transcribed Image Text:**Portfolio Management Exercise** You manage a risky portfolio with an expected rate of return of 18% and a standard deviation of 36%. The T-bill rate is 6%. Your risky portfolio includes the following investments in the given proportions: - **Stock A:** 27% - **Stock B:** 35% - **Stock C:** 38% --- Suppose that your client decides to invest in your portfolio a proportion \( y \) of the total investment budget so that the overall portfolio will have an expected rate of return of 15%. **a. What is the proportion \( y \)?** *(Round your answer to the nearest whole number.)* - **Proportion \( y \):** [Input Box] % --- **b. What are your client’s investment proportions in your three stocks and the T-bill fund?** *(Do not round intermediate calculations. Round your answers to 2 decimal places.)* | | **Investment Proportions** | |---------------------------|----------------------------| | **T-Bills** | [Input Box] % | | **Stock A** | [Input Box] % | | **Stock B** | [Input Box] % | | **Stock C** | [Input Box] % | --- **c. What is the standard deviation of the rate of return on your client’s portfolio?** *(Do not round intermediate calculations. Round your answer to 2 decimal places.)* - **Standard deviation:** [Input Box] %
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