Assume that you manage a risky portfolio with an expected rate of return of 15% and a standard deviation of 25%

Marketing Dec 20, 2020

Assume that you manage a risky portfolio with an expected rate of return of 15% and a standard deviation of 25%. The T-bill rate is 5%. Your client chooses to invest 80% of a portfolio in your fund and 20% in a T-bill money market fund. What is the expected return of your client's portfolio?

a. 17%

b. 7%

c. 14%

d. 12%

e. None of the above

Expert Solution

The answer is e. None of the above. Rationale is below.

The expected return of the portfolio can be computed by using a weighted average of the expected returns of the assets held. The work is below.

Portfolio Expected Return = .80 * .15 + .20 * .05 = .13 or 13%

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