Suppose you are a fund manager, managing an active fund with an expected return of 14% and a standard deviation of 20%. The risk-free rate is 2%. You are advising a risk averse client who has mean-variance preferences and would like to invest in a combination of the risk-free asset and your active fund. They currently have a passive portfolio with an expected return of 8% and a standard deviation of 12%. The sharpe ratios for the active fund and passive portfolio are 0.6 and 0.5 respectively. Could you answer this question in excel and explain how you did it: Draw the capital allocation line (CAL) of your active fund on an expected return-standard deviation diagram. Clearly indicate the position of your active fund and your client’s current passive portfolio in the figure.
Suppose you are a fund manager, managing an active fund with an expected return of 14% and a standard deviation of 20%. The risk-free rate is 2%. You are advising a risk averse client who has mean-variance preferences and would like to invest in a combination of the risk-free asset and your active fund. They currently have a passive portfolio with an expected return of 8% and a standard deviation of 12%. The sharpe ratios for the active fund and passive portfolio are 0.6 and 0.5 respectively. Could you answer this question in excel and explain how you did it: Draw the capital allocation line (CAL) of your active fund on an expected return-standard deviation diagram. Clearly indicate the position of your active fund and your client’s current passive portfolio in the figure.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Suppose you are a fund manager, managing an active fund with an expected return of 14% and a standard deviation of 20%. The risk-free rate is 2%. You are advising a risk averse client who has mean-variance preferences and would like to invest in a combination of the risk-free asset and your active fund. They currently have a passive portfolio with an expected return of 8% and a standard deviation of 12%. The sharpe ratios for the active fund and passive portfolio are 0.6 and 0.5 respectively. Could you answer this question in excel and explain how you did it: Draw the capital allocation line (CAL) of your active fund on an expected return-standard deviation diagram. Clearly indicate the position of your active fund and your client’s current passive portfolio in the figure.
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