Solve problems 20 and 21 for a client who uses your fund rather than an index fund.

Question:

Problems 20– 23 are based on the following assumptions. Suppose that the lending rate is rf = 5 percent, while the borrowing rate that your client faces is 9 percent. Continue to assume that the passive port-folio has an expected return of 13 percent and a standard deviation of 25 percent. Your fund here has rp = 11 percent and σp = 15 percent.

Suppose that the lending rate is rf = 5 percent, while the borrowing rate that your client faces is 9 percent. Continue to assume that the passive port-folio has an expected return of 13 percent and a standard deviation of 25 percent. Your fund here has rp = 11 percent and σp = 15 percent.

Expected Return
The expected return is the profit or loss an investor anticipates on an investment that has known or anticipated rates of return (RoR). It is calculated by multiplying potential outcomes by the chances of them occurring and then totaling these...