chap6 - Bodie Kane Marcus Perrakis and Ryan Chapter 6...

Info iconThis preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: Bodie, Kane, Marcus, Perrakis and Ryan, Chapter 6 Answers to Selected Problems You manage a risky portfolio with an expected rate of return of 18 percent and a standard deviation of 28 percent. The T-bill rate is 8 percent. 1. Your client chooses to invest 70 percent of a portfolio in your fund and 30 percent in a T-bill money market fund. What is the expected value and standard deviation of the rate of return on your client’s portfolio? Answer: Let c denote the client’s portfolio, let f denote the money-market fund and let p denote the risky portfolio. Then E [ r c ] = E [ . 7 r p + . 3 r f ] = . 7 E [ r p ] + . 3 r f = . 7 × . 18 + . 3 × . 08 = 15% . Since σ f = 0, the standard deviation of the client’s portfolio is given by σ c = . 7 σ p = . 7 × . 28 = 19 . 6% . 2. Suppose that your risky portfolio included the following investments in the given por- portions: Stock A : 27 percent Stock B : 33 percent Stock C : 40 percent What are the investment proportions of your client’s overall portfolio, including the 1 position in T-bills?position in T-bills?...
View Full Document

{[ snackBarMessage ]}

Page1 / 4

chap6 - Bodie Kane Marcus Perrakis and Ryan Chapter 6...

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online