Question

In: Accounting

You are considering for a client 3 investments as highlighted below. The first a stock, the...

You are considering for a client 3 investments as highlighted below. The first a stock, the second is a long-term corporate bond, and the third is a T-bill.
R(expected) Std Dev
T-Bill 8%
Bond 12% 12%
Stock 21% 25%
Correlation between S & B .15
a) what is the investment proportions in the minimum variance portfolio of the two risky funds, what is the expected return and standard deviation of that portfolio?
b) Draw the investment opportunity set highlighting the location of the min. variance portfolio as well as the optimal portfolio.
c) Calculate the Sharpe Ratio

Solutions

Expert Solution

ekkarill92 answered 1 year ago
Next > < Previous

Related Solutions

You are considering three investments. The first is a bond that is selling in the market...
You are considering three investments. The first is a bond that is selling in the market at $1,200. The bond has a $1,000 par value, pays interest semi-annually at 10%, and is scheduled to mature in 10 years. For bonds of this risk class you believe that a 12% rate of return should be required. The second investment that you are analysing is a preference share ($100 par value) that sells for $95 and pays an annual dividend of $10....
You are considering three investments. The first is a bond that is selling in the market...
You are considering three investments. The first is a bond that is selling in the market at $1 200. The bond has a $1 000 par value, pays interest at 8% and is scheduled to mature in 10 years. For bonds of this risk class you believe that a 9% rate of return should be required. The second investment that you are analyzing is a preferred stock ($125 par value) that sells for $120 and pays an annual dividend of...
You are considering three investments to add to your portfolio. The first is a bond that...
You are considering three investments to add to your portfolio. The first is a bond that is selling in the market at $1,100. The bond has a $1,000 par value, pays interest at 13 percent, and is scheduled to mature in 15 years. For bonds has a high risk rating (junk bond) and therefore you believe that a 14 percent rate of return should be required. The second investment that you are analysing is a preferred stock ($100 par value)...
You are an investment manager considering investments in a Stock fund and a bond fund. You...
You are an investment manager considering investments in a Stock fund and a bond fund. You forecast the following scenario probabilities and returns for the two assets: Scenario Probability Stock fund Return (%) Bond fund Return (%) Recession 1/3 -15% -9% Normal growth 1/3 6% 15% Boom 1/3 30% 9% Which of the following is closest to the volatility (standard deviation) of the Stock fund return? 10% 18% 3% 20% 14% Based on the data in Question #22, which of...
You are an investment manager considering investments in a Stock fund and a bond fund. You...
You are an investment manager considering investments in a Stock fund and a bond fund. You forecast the following scenario probabilities and returns for the two assets: Scenario Probability Stock fund Return (%) Bond fund Return (%) Recession 1/3 -15% -9% Normal growth 1/3 6% 15% Boom 1/3 30% 9% Which of the following is closest to the volatility (standard deviation) of the Stock fund return? 10% 18% 3% 20% 14% Based on the data in Question #22, which of...
You are a U.S. investor who is considering investments in the Australian stock market, but you...
You are a U.S. investor who is considering investments in the Australian stock market, but you worry about currency risk. You run a regression of the returns on the Australian stock index (in A$) on movements in the Australian dollar exchange rate (U.S.$ per A$) and find a slope of -0.5. a. What is your currency exposure if you invest in a diversified portfolio of Australian stocks? b. You invest $10 million in the diversified portfolio, but you fear that...
You are considering two investments. Let X represent the proportional rate of return on the first...
You are considering two investments. Let X represent the proportional rate of return on the first investment, and let Y represent the proportional rate of return on the second investment. These are annual rates of return. X is approximately normally distributed with mean 0.25 and standard deviation 0.2. Y is approximately normally distributed with mean 0.30 and standard deviation 0.4. The first six questions are about the rates of return, X and Y. What is the probability of a negative...
You are considering two investments. Let X represent the proportional rate of return on the first...
You are considering two investments. Let X represent the proportional rate of return on the first investment, and let Y represent the proportional rate of return on the second investment. These are annual rates of return. X is approximately normally distributed with mean 0.35 and standard deviation 0.3. Y is approximately normally distributed with mean 0.40 and standard deviation 0.5. These six questions are about the rates of return, X and Y. 1. What is the probability of a negative...
Your client wants to purchase stock on margin. You assess the client and the stock and...
Your client wants to purchase stock on margin. You assess the client and the stock and decide that a 40% margin is appropriate. Commissions are 1% and the rate of interest on margin loans is 8%. The current price of the stock is $100/share and your client wants to purchase 1,000 shares. a. How much cash must your client put into the acc ount to support the initial purchase? b. Below what price would the price of the stock have...
3. A pension fund manager is considering three mutual funds. The first is a stock fund,...
3. A pension fund manager is considering three mutual funds. The first is a stock fund, the second is a long-term government and corporate bond fund, and the third is a T-bill money market fund that yields a sure rate of 4.4%. The probability distributions of the risky funds are:    Expected Return Standard Deviation Stock fund (S) 14 % 34 % Bond fund (B) 5 % 28 % The correlation between the fund returns is .0214. Suppose now that your...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT