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Unformatted text preview: 2 =0 Solve the equation, we can get IRR=7.117% 4. E(r P ) = (0.3 × 8%) + (0.7 × 18%) = 15% per year σ P = 0.7 × 28% = 19.6% per year 5. Security Investment Proportions TBills 30.0% Stock A 0.7 × 25% = 17.5% Stock B 0.7 × 32% = 22.4% Stock C 0.7 × 43% = 30.1% 6. Your Rewardtovariability ratio = S = 28 8 18= 0.3571 Client's Rewardtovariability ratio = 6 . 19 8 15= 0.3571 7. Mean of portfolio = (1 – y)rf + y rP = rf + (rP – rf )y = 8+ 10y If the expected rate of return for the portfolio is 15%, then, solving for y: 16 = 8+ 10y ⇒ y = 10 8 16= 0.8 Therefore, in order to achieve an expected rate of return of 16%, the client must invest 80% of total funds in the risky portfolio and 20% in Tbills. a. Security Investment Proportions TBills 20.0% Stock A 0.8 × 25% = 20.0% Stock B 0.8 × 32% = 25.6% Stock C 0.8 × 43% = 34.4% b. σ P = 0.8 × 28% = 22.4% per year...
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This note was uploaded on 09/20/2009 for the course BA 4346 taught by Professor Kelseyd.wei during the Spring '09 term at University of Texas at Dallas, Richardson.
 Spring '09
 KelseyD.Wei

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