What is the slope of the cal

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You manage a risky portfolio with expected rate of return of 18% and standard deviation of 28%. The T-bill rate is 8%.

(a) 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?

(b) Draw the CAL of your portfolio on an expected return-standard deviation diagram. What is the slope of the CAL? Show the position of your client on your funds CAL.

(c) Your clients degree of risk aversion is A =3.5

i. What proportion, y, of the total investment should be invested in your fund?(Clearly indicate formula you use)

ii. What is the expected value and standard deviation of the rate of return on your clients optimized portfolio? Show optimal complete portfolio in your graph above.

Reference no: EM13940712

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