clients has invested $10 million in long-term corporate bonds. This investment had the following characteristics: expected...

clients has invested $10 million in long-term corporate bonds. This investment had the following characteristics: expected annual return 9%; annual standard deviation 10%. One of your analysts suggested that Index Fund might serve your client purposes better. You have looked at the proposed fund and calculated that expected return was 14% and standard deviation was 16%. However, the highest risk the client was ready to take was 10% standard deviation. Therefore, you have started to think about different portfolio options.

Question 10. Calculate and answer the following questions:

The first option was a combination of T-bills and Index Fund. The yield on T-bills was 6%. Is it possible to achieve expected rate of return higher than existing investment (9%), while keeping the risk at the same level (10%)?
Is it possible to reduce the risk (10%) and increase expected return (9%) by investing equally in corporate bonds and Index Fund? Assume that correlation between corporate bonds and Index Fund is equal to 0.1.

PLEASE I NEED TYPED FORM NOT EXEL

PLEASE SHOW WITH FORMULAS AND EXPLANATIONS IF IT IS POSSIBLE

THANK YOU

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Expert Solution

orchestra answered 1 year ago

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