You manage an equity fund with an expected risk premium of 1

You manage an equity fund with an expected risk premium of 12.4% and a standard deviation of 38%. The rate on Treasury bills is 5.4%. Your client chooses to invest $120.000 of her portfolio in your equity fund and $80.000 in a T-bill money market fund. What is the expected return and standard deviation of return on your client\'s portfolio? (Round your answers to 2 decimal places.) Expected return Standard deviation

Solution

return of the investment = 0.60*12.4 + 0.40*5.4 = 9.6%

Standard Deviation = [0.60*(0.124-0.096)²+0.40*(0.054-0.096)²]^1/2 = 3.43%