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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 returnstandard 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 riskfree rate. What must be the value of the riskfree 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
 JohnHartman

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