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Unformatted text preview: b) Now suppose your client decides to invest a proportion of money into your fund such that he expects a rate of return of 16%. What would be the standard deviation of the rate of return on this portfolio? Q3. You estimate that a passive portfolio, that is, one invested in a risky portfolio that mimics the S&P 500 stock index, yields an expected rate of return of 13% with a standard deviation of 25%. You manage an active portfolio with expected return 18% and standard deviation 28%. The risk free rate is 8%. a) Draw the CML and your funds’ CAL on an expected return-standard deviation diagram b) What is the slope of the CML? Q4. Suppose that there are many stocks in the security market and that the characteristics of A and B are given as follows: Stock Expected Return Standard Deviation A 10 5 B 15 10 Correlation = -1 Assume it is possible to borrow at the risk-free rate. What must be the value of the risk-free rate?...
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This note was uploaded on 12/05/2011 for the course ECON 134b taught by Professor Johnhartman during the Fall '11 term at UCSB.
- Fall '11