You manage a risky portfolio with an expected rate of return of 18% and a standard deviation of 28%. The T-bill rate is 8%. Your client chooses to invest 70% of a portfolio in your fund and 30% in a T-bill money market fund. What is the expected value and standard deviation of the rate of return on his portfolio?

Question

Arabella Ingram

Business

29 November, 12:07

You manage a risky portfolio with an expected rate of return of 18% and a standard deviation of 28%. The T-bill rate is 8%. Your client chooses to invest 70% of a portfolio in your fund and 30% in a T-bill money market fund. What is the expected value and standard deviation of the rate of return on his portfolio?

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Johan Acevedo · Answer 1

expected return = (70% x 18%) + (30% x 8%) = 12.6% + 2.4% = 15%

standard deviation of the rate of return = 70% x 28% = 19.6%

Explanation:

The expected return for this portfolio is the weighted average of the individual returns.

The standard deviation is the weighted standard deviation of the riskiest investment only.