Portfolio Management : Expected return & Asset selection

CFA Level II Portfolio Management
#1

I am hoping someone could help with the following question which I have been stucked for days.

Agnes is a Fund Manager preparing a Performance Report for her client. The risk free rate is 5% and the expected return on the investor’s tangency portfolio is 13%, with a standard deviation of 20%.

a) Calculate the portfolio’s expected risk premium per unit of risk

b) Calculate the portfolio’s expected return if the portfolio’s standarad deviation of return is 20%

c) Help Agnes to select the most appropriate portfolio for investment using Markowitz decision rule with adequate justification

d) Helo Agnes to select the most appropriate portfolio assuming that borrowing and longing at the risk free rate of 2% is possible.

Portfolio A: Expect return= 14% ; Standard deviation= 18%

Portfolio B: Expected return= 12% ; Standard deviation= 9%

Portfolio C: Expected return= 12% ; Standard deviation= 10%

#2

Which part?

a) use the sharpe ratio

b) I’m not sure what this is asking…? Wouldn’t the answer be 13% given in the question??

c) Markowitz decision rule would say that B dominates C (same return with lower risk), but the decision between B and A would depend on Agnes risk tolorenance.

d) Not sure?

#3

A:0.4

B:13%

D: choose portfolio with highest sharpe ratio which is B, 1.1