Rate of return on clients portfolio


You are a portfolio manager or a risky portfolio with an expected rate of return of 15% and a standard deviation of 20%. The T-bill rate is 5%. Suppose your risky portfolio includes the following investments in the given proportions.

Stock         Given Proportions

Stock A          20%

Stock B          30%

Stock C          50%

Suppose your client decides to invest in your risky portfolio a proportion of (y) of his total investment budget so that his overall portfolio will have an expected rate of return of 13%

a. What is the proportion of y?

b. What is the standard deviation of the rate of return on your client's portfolio?

c. What are your client's investment proportions in your three stocks and the T-bill fund?

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Finance Basics: Rate of return on clients portfolio
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