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Your client, Jenny Ng, holds a complete portfolio that consists of a portfolio of risky assets (P) and T-Bills
Your client, Jenny Ng, holds a complete portfolio that consists of a portfolio of risky assets (P) and T-Bills. The information below refers to these assets. E(R) 15.00% Standard Deviation of P 8.40% T-Bill rate 3.50% Proportion of Complete Portfolio in P Proportion of Complete Portfolio in T-Bills 75.00% 25.00% Composition of P: Stock A Stock B Stock C Total 45.00% 30.00% 25.00% 100.00% a. What is the expected return on Jenny's complete portfolio? (4 points) b. What is the standard deviation of Jenny's complete portfolio? (4 points) c. What are the proportions of Stocks A, B, and C, respectively in Jenny's complete portfolio? (5 points)
Expert Solution
(a). Expected Return on Complete Portfolio, E(RC) = wP E(RP) + wF E(RF)
E(RC) = (0.75)*(15%) + (0.25)*(3.5%) = 12.125%
(b). Since the T-bills are risk free, the standard deviation of complete portfolio will equal to the standard deviation of the risky portfolio. Thus, σC = 8.40%
(c). Proportion of Stock A in complete portfolio = (0.75)(0.45) = 0.3375, i.e., 33.75%
Proportion of Stock B in complete portfolio = (0.75)(0.30) = 0.225, i.e., 22.5%
Proportion of Stock C in complete portfolio = (0.75)(0.25) = 0.1875, i.e., 18.75%
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