Suppose you want to invest in a portfolio comprising an index fund that reproduces the market portfolio (such as the S&P/TSX composite index) and also T-bills. Your investment budget is $10,000. The market index has an expected return of 16% and standard deviation of 12%, and the return on T-bills is 4%. Your goal is to get an expected return of 14% on the combined portfolio (Index fund and T-bills).

1. How much do you need to invest in the index fund and how much in T-Bills?
2. What is the standard deviation of this combined portfolio?
3. What is the reward to variability ratio of the index fund?
4. What is the reward to variability ratio of the combined portfolio (index fund and T-bills)?

Answer rating: 100% (QA)

1 Return of Portfolio Weight of Index fundReturn of Index fundWeight of T billReturn ... View the full answer