INDIVIDUAL ASSIGNMENT

Individual Assignment

Assessment

Answer 1)

E (rp) = 12% sp= 15.5% rf = 5.5%

E(r) = 11% = 5.5 + y(12%-5.5%)

a) y = (11-5.5) / (12-5.5) = 0.846

Client should invest 84.6% of its investment in the risky portfolio while remaining in the risk free portfolio.

b) s = ysp = 0.846* 0.155 = 13.113%

c) Another client who wants the highest to the first client is more risk averse, allowing a smaller standard deviation. In order words he is not willing to high of a standard deviation and is willing to settle for a smaller expected return

Answer 2)

a. Calculate ...