Problem 1 a,b,c is solved. I need help with d)! Assume that your risky portfolio has an expected rate of return of 20% with a standard deviation of 36%. For your investment horizon, the appropriate T-bill rate is 5%. Your risky portfolio includes the following investments in the given proportions:Stock A 35 percent Stock B 36 percent Stock C 29 percentYour client chooses to invest 60% of her portfolio in your fund (risky portfolio) and 40% in a T-bill money market fund promising a 5% return.a) What is the expected rate of return and the standard deviation of the client’s portfolio?Expected Return of Portfolio= weight of risky assets* expected return of risky assets weight of risk free asset*return on risk free asset= .60*.20 .40*.05= .12 .02 = 14%Standard Deviation= .60*.36= 21.6%b) What are the investment proportions of your client’s overall portfolio, including the position in T-bills?Investment ProportionStock A = .60*.35 = 21%Stock B = .60*.36 = 21.6%Stock C = .60*.29 = 17.4%T-bill = 40%c) What is the reward-to-volatility ratio of your risky portfolio? Of your client’s portfolio?Reward to volatility ratio of risky asset= Expected Return of risky asset – Risk free Rate / Standard deviation of risky asset= .20- .05 / .36 = .4166Reward to Volatility ratio of Client portfolio= .14 – .05 / .216= .4166d) Draw the CAL of your portfolio on an expected return-standard deviation diagram. What is the slope of the CAL? Show the position of your client on your fund’s CAL!
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