Select your language

Suggested languages for you:
Log In Start studying!
Answers without the blur. Just sign up for free and you're in → Illustration

Q18I.

Expert-verified
Essentials Of Investments
Found in: Page 143
Essentials Of Investments

Essentials Of Investments

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

Short Answer

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

Step by Step Solution

Given information

Expected risk premium = 10%

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%

Most popular questions for Business-studies Textbooks

Icon

Want to see more solutions like these?

Sign up for free to discover our expert answers
Get Started - It’s free

Recommended explanations on Business-studies Textbooks

94% of StudySmarter users get better grades.

Sign up for free
94% of StudySmarter users get better grades.