Question

In: Finance

Joyce Bromfield has $30,000 to invest for 5 years. She will allocate her money to government...

Joyce Bromfield has $30,000 to invest for 5 years. She will allocate her money to government Treasury Bills (T-Bills), mutual fund A, and mutual fund B as follows: $4,500 in T-bills; $13,500 in A and $12,000 in B. Fund A has a front-end fee of 5%, MER of 2% and no rear-end fee. Fund B has no front-end fee, MER of 2.5%, and rear-end fee of 5%. Assume that the appropriate discount rate to compare fund fees is 5%.

The expected rates of return and standard deviations of the funds are as follows:

Expected

Return (%)

Standard deviation (%)

A

10

20

B

13

25

T-bill

3

0

The correlation coefficients between A and B is 0.4 .

Answer:

  1. What is the expected rate of return of her portfolio?
  2. What is the standard deviation of her portfolio?
  3. If her portfolio’s return is normally distributed, what is the probability
  1. That she will lose money next year? (
  2. That she will earn at least 15% next year? (
  1. What is the annual fee of each of the funds, A and B, if she holds the funds for 6 years?  

Solutions

Expert Solution

Use a spreadsheet for the ease in computations. Enter the values and the formulas in the spreadsheet as shown in the image below.

The obtained result is provided below.

jeff jeffy answered 1 year ago
Next > < Previous

Related Solutions

Joyce Bromfield has $30,000 to invest for 5 years. She will allocate her money to government...
Joyce Bromfield has $30,000 to invest for 5 years. She will allocate her money to government Treasury Bills (T-Bills), mutual fund A, and mutual fund B as follows: $4,500 in T-bills; $13,500 in A and $12,000 in B. Fund A has a front-end fee of 5%, MER of 2% and no rear-end fee. Fund B has no front-end fee, MER of 2.5%, and rear-end fee of 5%. Assume that the appropriate discount rate to compare fund fees is 5%. The...
Joyce Keegan has decided to invest $500 quarterly for 5 years in an ordinary annuity at...
Joyce Keegan has decided to invest $500 quarterly for 5 years in an ordinary annuity at 12%. As her financial adviser, calculate the total cash value of the annuity at the end of year 5 for Joyce.
Zeinab is very conservative with her money and has $100,000 to invest. She is evaluating two...
Zeinab is very conservative with her money and has $100,000 to invest. She is evaluating two alternatives - a municipal bond issued by the state of Ohio that pays 4% interest and a bond issued by Sears Corporation that pay 14%. Zeinab is in the 35% marginal tax bracket and overall she pays an average 25% tax rate.    a) After taxes how much will each bond pay Zeinab per year?    b) What attributes of the bonds should Zeinab...
How many years it will take Judy to accumulate $30,000 if she invest $25,869 at 2.5%...
How many years it will take Judy to accumulate $30,000 if she invest $25,869 at 2.5% rate?
Maria has about $200,000 to invest for 5 years. Given her current investments, her adviser has...
Maria has about $200,000 to invest for 5 years. Given her current investments, her adviser has recommended that she invest the money in corporate bonds. Her adviser has suggested two alternatives. Alternative 1 is $200,000 face value of bonds with quarterly coupon payments and a coupon rate of 8% APR compounded quarterly. These bonds were issued five years ago and have exactly five years remaining. They are selling at a price that implies a yield to maturity of 7.90% APR...
Ramona Sanjuan is planning to invest $10-million of her own money but she is undecided among...
Ramona Sanjuan is planning to invest $10-million of her own money but she is undecided among the following two alternative portfolios: Portfolio 1: Investing $4-million in a North-American Market Index fund “A” and the rest in a European market index fund “B” Portfolio 2: Investing $7-million in fund “A” and the rest in fund “B” The predicted returns over the next year for fund “A”, fund “B”, and T-bills are as follows: Returns (Annualized) Economic Scenario Probability North- American Index...
CASE #5 APR vs EAR Mary Jo plans to invest some money so that she has...
CASE #5 APR vs EAR Mary Jo plans to invest some money so that she has $8,000 at the end of three years. Option A Option B Option C Option D APR 5.19% 5.11% 5.20% 5.40% m/per year 365 12 4 1 How much should she invest today given the choices above? What is her best choice? What is the EAR for each account? Support your decision in question 2. Physical therapy equipment purchase Your firm needs to buy additional...
A woman has a total of $14,000 to invest. She invests part of the money in...
A woman has a total of $14,000 to invest. She invests part of the money in an account that pays 11% per year and the rest in an account that pays 12% per year. If the interest earned in the first year is $1630, how much did she invest in each account?
Leslie is saving to purchase a Ferrari. She has no money to invest now, but will...
Leslie is saving to purchase a Ferrari. She has no money to invest now, but will invest $3,200 each year for 15 years. By the end of the 15 years she will have her business established and will be able to make payments of $1,000 into the account each month. Finally she will let the money sit for ten years without making any payments and it will grow to $1,000,000, at which time Leslie can purchase the Ferrari of her...
1. Sassy has been advised by her financial planner to invest $30,000 today in an ETF...
1. Sassy has been advised by her financial planner to invest $30,000 today in an ETF Sustainable Fund. If the fund earns 6% annual return with quarterly compounding, to what amount will her investment grow in 10 years? Group of answer choices 53,725.43 66,241.19 308,571.54 54,420.55 2 Eduardo is planning to invest $10,000 in a mutual fund at the end of each of the next 10 years. If his opportunity cost rate is 7% compounded annually, how much will his...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT