Question

Number 7

B - What is your dollar weighted rate of return? 7 – You manage a fund with an expected rate of return of 11% and a standard deviation of 19%. T-bills yield 1%. A - If a client invests 80% in your fund and 20% in T-bills, what is their expected rate of return and standard deviation? B - Suppose that the client would rather get an expected return of 12%. What percentage of her portfolio would be invested in your fund and what would its standard deviation be? 8 - Redo Ch. 6, problem #8 assuming that all of the information is the same except that the expected return on the stock fund is 14%, the standard deviation of the stock fund is 30% and the correlation of the stock and bond funds is 0.30.

Answer 1

1.
Expected return=80%*11%+20%*1%=9.00%

Standard deviation=80%*19%=15.20%

2.
Let w be the weight in fund
w*11%+(1-w)*1%=12%
=>w=(12%-1%)/(11%-1%)=1.1

% invested in fund=1.1*100%=110%

Standard deviation=1.1*19%=20.90%