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Assume that you manage a risky portfolio with an expected rate of return of 19% and a standard deviation of 34%. The T-bill rate is 8%.

Your client chooses to invest 70% of a portfolio in your fund and 30% in a T-bill money market fund. What is the expected value and standard deviation of the rate of return on his portfolio?

  Expected return . %?  Standard deviation . %?



  1. Assume that you manage a risky portfolio with an expected rate of return of 18% and a standard deviation of 30%. The T-bill rate is 6%. Your client chooses to invest 65% of a portfolio in your fund and 35% in a T-bill money market fund.

What is the reward-to-volatility ratio (S) of your risky portfolio and your client's portfolio?

    Your reward-to-volatility ratio?  Client's reward-to-volatility ratio?

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Consider historical data showing that the average annual rate of return on the S&P 500
portfolio over the past 85 years has averaged roughly 8% more than the Treasury bill
return and that the S&P 500 standard deviation has been about 20% per year. Assume
these values are representative of investors‘ expectations for future performance and
that the current T-bill rate is 5%. Calculate the expected return and variance of portfolios invested in T-bills and the S&P
500 index with weights as follows: (Leave no cells blank - be certain to enter "0"
wherever required. Do not enter your answer as a percentage but in a decimal
format. Round "Expected Return" to 4 decimal places and the “Variance" to 4 decimal
places.) , Expected
WB'HS Wlndex Return Variance
0.0 1.0 0.1300 0.0400 Example
0-2 0-8 |:| |:|
0‘4 0‘5 |:| |:|
0‘5 0'4 |:| |:|
0-8 0-2 |:| |:|
1-0 0-0 |:| |:|

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