What is the largest percentage fee that a client who currently is lending (y < 1) will be willing to pay to invest in your fund? What about a client who is borrowing (y > 1)?

For Challenge Problems 27 and 28: You estimate that a passive portfolio, that is, one invested in a risky portfolio that mimics the S&P 500 stock index, yields an expected rate of return of 13% with a standard deviation of 25%. You manage an active portfolio with expected return 18% and standard deviation 28%. The risk-free rate is 8%.

Suppose that the borrowing rate that your client faces is 9%. Assume that the S&P 500 index has an expected return of 13% and standard deviation of 25%, that rf = 5%, and that your fund has the parameters given in Problem 21.