Suppose that the borrowing rate that your client faces is 11%. Assume that the S&P 500 index has an expected return of 15% and standard deviation of 21%. Also assume that the risk-free rate is rf = 3%. Your fund manages a risky portfolio, with the following details: E(rp) = 12%, Ïp = 15%.
What is the largest percentage fee that a client who currently is lending (y < 1) will be willing to pay to invest in your fund? What about a client who is borrowing (y > 1)? (Negative values should be indicated by a minus sign. Do not round intermediate calculations. Round your answers to 2 decimal places. Omit the "%" sign in your response.)
y < 1 % y > 1 %
| Suppose that the borrowing rate that your client faces is 11%. Assume that the S&P 500 index has an expected return of 15% and standard deviation of 21%. Also assume that the risk-free rate is rf = 3%. Your fund manages a risky portfolio, with the following details: E(rp) = 12%, Ïp = 15%. |
| What is the largest percentage fee that a client who currently is lending (y < 1) will be willing to pay to invest in your fund? What about a client who is borrowing (y > 1)? (Negative values should be indicated by a minus sign. Do not round intermediate calculations. Round your answers to 2 decimal places. Omit the "%" sign in your response.) |
| y < 1 | % |
| y > 1 | % |
Related questions
| Assume that you manage a risky portfolio with an expected rate of return of 17% and a standard deviation of 29%. The T-bill rate is 8%. Your clientâs degree of risk aversion is A = 2.9, assuming a utility function U = E(r) - ½Aϲ. |
| a. | What proportion, y, of the total investment should be invested in your fund? (Do not round intermediate calculations. Round your answer to 2 decimal places. Omit the "%" sign in your response.) |
| Investment proportion y | % |
| b. | What is the expected value and standard deviation of the rate of return on your clientâs optimized portfolio? (Do not round intermediate calculations. Round your answers to 2 decimal places. Omit the "%" sign in your response.) |
| Expected return | % | |
| Standard deviation | % | |
Assume that you manage a risky portfolio with an expected rate of return of 14% and a standard deviation of 38%. The T-bill rate is 5%. Your client chooses to invest 85% of a portfolio in your fund and 15% in a T-bill money market fund.
a. What is the expected return and standard deviation of your client's portfolio? (Round your answers to 2 decimal places.)
| Expected return | % per year |
| Standard deviation | % per year |
b. Suppose your risky portfolio includes the following investments in the given proportions:
| Stock A | 22% |
| Stock B | 31% |
| Stock C | 47% |
What are the investment proportions of your clientâs overall portfolio, including the position in T-bills? (Round your answers to 2 decimal places.)
| Security | Investment Proportions | |
| T-Bills | % | |
| Stock A | % | |
| Stock B | % | |
| Stock C | % | |
c. What is the reward-to-volatility ratio (S) of your risky portfolio and your client's overall portfolio? (Round your answers to 4 decimal places.)
| Reward-to-Volatility Ratio | |
| Risky portfolio | |
| Clientâs overall portfolio | |
