Question

Assume that you manage a risky portfolio with an expected return of18% and a standard deviation of 28%. The T-note rate is 2.7%. If your client chooses to invest 75% of a portfolio in your fund and 25% in a T-note bond fund.

a. What is the expected return of your client's portfolio?

b. What is the standard deviation of your client's prtfolio?

Step 1

a.

The expected return of portfolio can be computed by the following equation:

Step 2

Therefore, the computation of expected return of portfolio is as follows:

Therefore, the expected rate of return of the client’s portfolio is **14.175%.**

Step 3

b.

Since the standard deviation for the T-note bond fund is zero, the computation of standard deviation of the client’s p...

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