Question

Assume you manage a risky fund with an expected rate of return of 18% and a standard deviation of 28%. The T-bill rate is 4% Your client chooses to invest 65% of a portfolio in your fund and the rest in T-bills. What is the expected return of your client's portfolio (enter your answer in percent with two decimal places)?

Answer 1

The expected return of the portfolio is:
Expected return = 65% x 18% + 35% x 4%
Expected return = 11.7% + 1.4%
Expected return = 13.1%

Therefore, the expected return of the client's portfolio is 13.10%.