You estimate that a passive portfolio, that is, one invested in a risky portfolio that mimics the S&P 500 stock index, yields an expected rate of return of 13% with a standard deviation of 25%. You...


You estimate that a passive portfolio, that is, one invested in a risky portfolio that mimics the S&P<br>500 stock index, yields an expected rate of return of 13% with a standard deviation of 25%. You<br>manage an active portfolio with expected return 18% and standard deviation 28%. The risk-free rate<br>is 8%.<br>i) Draw the CML and your funds' CAL on an expected return-standard deviation diagram.<br>ii) What is the slope of the CML?<br>iii) Characterize in one short paragraph the advantage of your fund over the passive fund.<br>

Extracted text: You estimate that a passive portfolio, that is, one invested in a risky portfolio that mimics the S&P 500 stock index, yields an expected rate of return of 13% with a standard deviation of 25%. You manage an active portfolio with expected return 18% and standard deviation 28%. The risk-free rate is 8%. i) Draw the CML and your funds' CAL on an expected return-standard deviation diagram. ii) What is the slope of the CML? iii) Characterize in one short paragraph the advantage of your fund over the passive fund.

Jun 08, 2022
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