Suggested languages for you:

Q18I.

Expert-verified
Found in: Page 143

### Essentials Of Investments

Book edition 9th
Author(s) Zvi Bodie, Alex Kane, Alan Marcus, Alan J. Marcus
Pages 748 pages
ISBN 9780078034695

# You manage an equity fund with an expected risk premium of 10% and a standard deviation of 14%. The rate on Treasury bills is 6%. Your client chooses to invest $60,000 of her portfolio in your equity fund and$40,000 in a T-bill money market fund. What is the expected return and standard deviation of return on your client’s portfolio?

Expected return = 12%

Standard deviation of return =.8.4%

See the step by step solution

## Given information

Standard deviation = 14%

Rate on treasury bills = 6%

Equity fund investment = $60,000 T-bill money market fund investment =$40,000

## Calculation of standard deviation of return of the client’s portfolio

Expected return for your fund = T-bill rate + risk premium = 6% + 10% = 16%

Expected return of client’s overall portfolio = (0.6 x 16%) + (0.4 x 6%) = 12%

Standard deviation of client’s overall portfolio = 0.6 x 14% = 8.4%