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10 March, 05:12

Assume that you manage a risky portfolio with an expected rate of return of 12% and a standard deviation of 39%. The T-bill rate is 6%. Your risky portfolio includes the following investments in the given proportions: Stock A 23% Stock B 32% Stock C 45% Your client decides to invest in your risky portfolio with a proportion (y) of his investment budget with the rest in a T-bill (MMF) money market fund so that the overall portfolio will have an expected return of 9%. What is the proportion y

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  1. 10 March, 06:15
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    y = 50 %

    Explanation:

    As per the data given in the question, computation are as follows:

    Expected return = y * expected rate of return for portfolio + (1 - y) * rate of T-bills

    By putting the value from the given data in the above formula, we get

    0.09 = y*0.12 + (1 - y) * 0.06

    0.09 = 0.12y + 0.06 - 0.06y

    0.03 = 0.06 y

    y = 0.50

    = 50%
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