Suppose that you manage a fund with an expected rate of return of 12.5% and a standard deviation of 18%. The T-bill rate currently is 4%. Your client chooses to invest 70% of a portfolio in your fund and 30% in a T-bill money market fund.
a) What is the expected return and standard deviation of your client's portfolio?
b) Suppose your risky portfolio includes the following investments in the given proportions:
Stock A 40%
Stock B 25%
Stock C 35%
What are the investment proportions of your client's overall portfolio, including the position in T-bills?
c) What is the reward-to-volatility ratio (S) of your risky portfolio and your client's overall portfolio?