Adequate information: Expected rate of return of risky asset =18% Standard deviation of the risky asset=28% T-bill rate is 8% Client’s degree of risk aversion A=3.5 To compute: The proportion of Y of the total investment Introduction: Portfolio optimization: When an investor has to select the best portfolio or asset distribution from the given set of portfolios, he/she has to very careful as his purpose or objective of investing should be fulfilled. So, the process involving this activity can be termed as Portfolio optimization. By proper planning and calculations, the risk factor can be decreased and thereby increasing the returns.

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Chapter 6, Problem 19PS

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’s degree of risk aversion A=3.5

To compute: The proportion of Y of the total investment

Introduction:

Portfolio optimization: When an investor has to select the best portfolio or asset distribution from the given set of portfolios, he/she has to very careful as his purpose or objective of investing should be fulfilled. So, the process involving this activity can be termed as Portfolio optimization. By proper planning and calculations, the risk factor can be decreased and thereby increasing the returns.

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’s degree of risk aversion A=3.5

To compute: The expected rate of return and the standard deviation of the enhanced portfolio related to client.

Introduction:

Portfolio optimization: When an investor has to select the best portfolio or asset distribution from the given set of portfolios, he/she has to very careful as his purpose or objective of investing should be fulfilled. So, the process involving this activity can be termed as Portfolio optimization. By proper planning and calculations, the risk factor can be decreased and thereby increasing the returns.

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