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Your uncle has $2,000 invested in a mutual fund with a beta of 1.2 and a...

Your uncle has $2,000 invested in a mutual fund with a beta of 1.2 and a standard deviation of 12%. His financial adviser suggested that he should move his money into an Index fund that tracks the Russell 2000, which has a beta of 1.9 and a standard deviation of 18%. How could your uncle invest his money in some combination of that Index fund and risk-free T-bills that would increase his expected return without increasing his standard deviation? Assume the risk-free rate is 3% and the expected return on the market is 11%.

Solutions

Expert Solution

SEE THE IMAGE. ANY DOUBTS, FEEL FREE TO ASK. THUMBS UP PLEASE

INVEST IN INDEX FUND = 66.67% = 1333.33

INVEST IN RISK FREE T BILL = 33.33% = 666.67

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jeff jeffy answered 1 year ago
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