Consider the following information about a risky portfolio that you manage and a risk-free asset: E(r_P) = 12%, σ_P = 17%, r_f = 3%.
a. Your client wants to invest a proportion of her total investment budget in your risky fund to provide an expected rate of return on her overall or complete portfolio equal to 8%. What proportion should she invest in the risky portfolio, P, and what proportion in the risk-free asset? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

b. What will be the standard deviation of the rate of return on her portfolio? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

c. Another client wants the highest return possible subject to the constraint that you limit his standard deviation to be no more than 12%. Which client is more risk averse?

  
 

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Risky portfolio Risk-free asset % % Risky portfolio Risk-free asset % %

Answer rating: 100% (QA)

a Portfolio Weights Let W be the proportion invested in the risky portfolio P and 1 W be the proport... View the full answer