Question: You are managing a risky portfolio with a standard deviation of 28% and expected yield of 18%. The risk-free rate is 8%. A client of

You are managing a risky portfolio with a standard deviation of 28% and expected yield of 18%. The risk-free rate is 8%.

A client of yours is interested to allocate 70% of his capital to your fund and the rest to risk-free asset. Calculate expected return and standard deviation of his portfolios rate of return? (4 marks)

Compare your funds sharp ratio with your clients share ratio? (4 marks)

Draw your funds CAL and show the position of your client? (4 marks)

If the client decide to target 16% rate of return on his overall portfolio, how much he should invest in your fund? (4 marks)

What will be the standard deviation of rate of return of your client at above allocation? (3 marks)

If clients risk aversion is 3.5, how much he should invest in your fund? How much is the expected and standard deviation of rate of return of the client at above optimized allocation?

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