3. For the next four problems, assume that you manage a risky portfolio with an expected return of 15% and a standard deviation of 25%. The T-Bill rate is 5%

a. Your client chooses to invest 60% of a portfolio in your fund and 40% in a T-bill money market fund. What is the expected return and standard deviation of your client's portfolio?

b. Suppose your risky portfolio include the following investments in the given proportions:

Stock A 25%

Stock B 35%

Stock C 40%

I. What are the investment proportions of your client's overall portfolio, including the position in T-Bills?

II. Draw the CAL of your portfolio on an expected return/standard deviation diagram.

III. What is the slope of the CAL?

IV. Show the position of your client on your fund's CAL.

4. Suppose the same client in the previous problem decides to invest in your risky portfolio a proportion (y) of his total investment budget so that his overall portfolio will have an expected return of 12%.

a. What is the proportion?

b. What are your client's investment proportion in your three stocks and the T-Bill fund?

c. What is the standard deviation of the rate of return on your client's portfolio?

5. Suppose the same client as in the previous problem prefers to invest in your portflio a proportion (y) that maximizes the expected return on the overall portfolio subject to the constraint that the overall portfolio standard deviation will not exceed 20%.

a. What is the investment proportion?

b. What is the expected rate of return on the overall portfolio?