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What is the risk and return of a portfolio

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Reference no: EM133062788

Problem: Maria Makeba, CFA wants to construct a portfolio which includes government securities and equity exposure. She intends to use Treasury bills and an index fund tracking the JSE ALSI (FTSE All Share Index) to implement the strategy

Additional information:

  • The index fund has an annual return of 16% and a standard deviation of 30%.
  • The Treasury bills yield 10% per annum.
  • Maria invests 75% in equities.

required:

What is the risk and return of a portfolio that is 75% invested in the market portfolio?

If the lending rate is 12% per annum rather than 10%, what will happen to the slope of the CML? Calculate the slope of the CML.

After a successful initial foray in the shares market, Maria gets more confident and decides to construct a separate leveraged portfolio. She uses R100 000 of her own money and borrows R50 000 to invest in the index fund and expects to pay 10% per annum on the borrowed funds. Calculate and comment on the risk and return of the leveraged portfolio.

Reference no: EM133062788

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