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Q6. Portfolio Returns i. stock has mean of 10% and stdev of 15%; ii bond has...

Q6. Portfolio Returns

i. stock has mean of 10% and stdev of 15%;

ii bond has mean of 6% and stdev of 10%;

iii correlation b/w stock and bond of -0.4;

iv. Risk free rate for cash lending and borrowing is at 2%.

a. What is the mean and stdev of a portfolio of that is 60% in stock and 40% in bond (2 points)?

b. What is the mean and stdev of a portfolio of that is 30% in stock and 20% in bond, and the rest in cash (borrowing at cash rate of 2% if needed) (2 points)?

c. What is the mean and stdev of a portfolio of that is 90% in stock and 60% in bond, and the rest in cash (borrowing at cash rate of 2% if needed) (2 points)?

d. If you want to limit risk to 12%, how much should you invest in the 60-40 stock bond portfolio (the rest in case)? What is the mean return for the portfolio? (4 points)

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jeff jeffy answered 1 year ago
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