Assignment:
You estimate that a passive portfolio (that is, one entirely 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%.
(a) What is the slope of the CML?
(b) Characterize in one short paragraph the advantage of your fund over the passive fund.
(c) Your client is considering whether to switch to the passive portfolio the 70% of his wealth currently invested in your fund. Show your client that he is better off staying with you.