Chapter 6, Problem 17PS

a

Summary Introduction

Adequate information:

Expected rate of return of risky asset =18%

Standard deviation of the risky asset=28%

T-bill rate is 8%

Client wants to invest in your portfolio in the proportion Y

Overall portfolio’s expected rate of return =16%

To compute: The proportion of Y

Introduction:

Portfolio proportion: The calculation of portfolio proportion is simple. We have to divide each item of the stock position’s cash value by the complete or total portfolio value. This value is to be multiplied with 100 to get the value in percentages. This calculation is done to measure the dependence of the portfolio performance on each individual available stock.

b

Summary Introduction

Adequate information:

Expected rate of return of risky asset =18%

Standard deviation of the risky asset=28%

T-bill rate is 8%

Client decides to invest in your portfolio in the proportion Y

Overall portfolio’s expected rate of return =16%

To compute: TheClient’s investment proportion in available three stocks and T-bill fund.

Introduction:

Portfolio proportion: The calculation of portfolio proportion is simple. We have to divide each item of the stock position’s cash value by the complete or total portfolio value. This value is to be multiplied with 100 to get the value in percentages. This calculation is done to measure the dependence of the portfolio performance on each individual available stock.

c

Summary Introduction

Adequate information:

Expected rate of return of risky asset =18%

Standard deviation of the risky asset=28%

T-bill rate is 8%

Client decides to invest in your portfolio in the proportion Y

Overall portfolio’s expected rate of return =16%

To compute: The standard deviation of the rate of return of client’s portfolio

Introduction:

Portfolio proportion: The calculation of portfolio proportion is simple. We have to divide each item of the stock position’s cash value by the complete or total portfolio value. This value is to be multiplied with 100 to get the value in percentages. This calculation is done to measure the dependence of the portfolio performance on each individual available stock.