Suppose that the borrowing rate that your client faces is 9%. Assume that the equity market index has an expected return of 13% and standard deviation of 25%, that rf = 5%. Draw a diagram of your client’s CML, accounting for the higher borrowing rate. Superimpose on it two sets of indifference curves, one for a client who will choose to borrow, and one for a client who will invest in both the index fund and a money market fund.

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A: The conceptual formula of Standard deviation is:

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A:

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A: Expected Return of Equity = E(Ri) = Rf + ß * (Rm – Rf)

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A: A mixture of different kinds of funds and securities for the investment is term as the portfolio.

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A: Given: Risk free rate = 2% Market return = 8% Standard deviation = 10% Portfolio risk = 5%

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A: Required return = Rf + Beta (Rm- Rf) Where, Rf = Risk free return  Rm = Market return  9.70 = 2.2 +…

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A: Standard deviation A measurement of the variation of amount/ dispersion of the set of values.

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A: Expected return:- The expected return is considered as the profit or loss that is anticipated by an…

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A: a.Calculation of Expected Returns according to CAPM:

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A: Introduction to Treasury Bills Treasury bills are those short-term U.S. government debt obligations…

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A: Expected Risk Premium is 10% Expected Standard Deviation is 14% Rate on Treasury bills is 6%…

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A: Stock Price (S) =$ 62 Exercise (Strike) Price (K) = $66 Time to Maturity (in years) (T) = 1 Years…

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A: The tangent point from the risk-free rate to the opportunity set is drawn below:

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A: Given:

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A: The computation of the required return is done as:

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Q: Vega fund had return of 12%, a beta of 1.2, in a standard deviation of 25% last year t bills…

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A: GIVEN, RS=10%RB=8%σS=15%σB=12.5%WS=0.6WB=0.4CORREL=0.2

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A: 1) On the client's portfolio Total investment= $120,000 +$30,000 =$150,000   Expected  Portfolio…

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A: Risk free return is the rate of return of the investor with zero risk.

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A: standard DEVIATION of portfolio =(w12σ12 + w22σ22 + 2w1w2 p(1,2)σ1σ2)1/2

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Q: Assuming risk free rate to be 2% p.a while market return is expected to be 8% return with a Standard…

A: