solve the question 5

3. Suppose another client invests in your fund and in T-bills so that his portfolio has an expected return of 8% (a) If the client invests a total of $60,000, how much is invested in your fund? (b) What is his portfolios standard deviation? (c) What is the Sharpe ratio of his portfolio? How does it compare with your answer to 2(c)?(Assume you manage an equity fund with an expected risk premium of 8% and a standard deviation of 30%. The return on Treasury bills is 4%)

4. Consider now a gold fund with an expected risk premium of 2%, a standard deviation of 14%, and a correlation of 15% with the equity fund. Use Excel to tabulate and plot the investment opportunity set of the two funds (the equity fund and the gold fund). Use investment proportions for the equity fund of -100% to 200% in increments of 1%. Email me your Excel sheet and print out and include the plot with your write-up. 2

5. Suppose the client from Problem 3 again targets an expected return of 8%, but now he invests in your equity fund and the gold fund to achieve the 8% target return. (a) Of his $50,000 investment, how much is invested in your fund? (b) What is his portfolios standard deviation? (c) What is the Sharpe ratio of his portfolio? How does your answer here compare with your answer to Problem 3(c)?