What are your client’s investment proportions in your three stocks and the T-bill
fund?
c. What is the standard deviation of the rate of return on your client’s portfolio?
To determine the investment proportions in the three stocks and the T-bill fund, and subsequently calculate the standard deviation of the rate of return on the client's portfolio, we need the following information:
1. Investment Proportions: We require the percentage allocation of the client's portfolio to each of the three stocks and the T-bill fund. This information denotes the relative weight of each investment in the portfolio.
2. Historical Returns: We should have the historical returns of each stock and the T-bill fund. Historical returns are typically represented as a series of percentage changes in value over a certain period, such as monthly or yearly. This information helps us calculate the average return and standard deviation for each investment.
3. Correlations: We also need the correlation coefficients between the returns of each stock and the T-bill fund. Correlation measures the relationship between two investments and can help determine the diversification benefits of combining different assets in a portfolio.
4. Risk-Free Rate: Lastly, we need the risk-free rate of return, typically approximate by the rate of return on a T-bill or a government bond. The risk-free rate serves as a benchmark for comparing the returns of the stocks and helps measure the risk premium associated with each investment.
Once we have the above information, we can calculate the client's investment proportions by dividing their allocation among the three stocks and the T-bill fund. To calculate the portfolio's standard deviation, we would use the formula that takes into account the weights, returns, and correlations of the individual investments in the portfolio.
Please note that without specific data, it is not possible to provide the exact investment proportions or the standard deviation for your client's portfolio.