Question
In: Statistics and Probability
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
Solutions
orchestra answered 1 year agoRelated Solutions
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PROBLEM 1 XYZ Company acquired as a long - term investment $440 million of 8% bonds,...
PROBLEM
1
XYZ
Company
acquired as a long
-
term investment $440 million of 8% bonds,
on July 1,
2018
, and
management has the positive intent and
ability to hold the bonds until maturity
(three years, until
June 30
, 2021)
. The market interest rate
was 5% for bonds of similar risk and maturity.
XYZ
paid
$500 million for the bonds;
it
will receive interest semiannually on June 30 and December
31
.
a)
Prepare the journal entry...
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(a)
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probability that your return on these bonds will be less than -3.6
percent in a given year? (Do not round intermediate
calculations.)
(Click to
select)14.21%12.98%13.66%14.34%27.32%
(b)
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maturity the market yield was 10%. The price paid for the bonds was
$115 million. Interest is received semiannually on June 30 and
December 31. Due to changing market conditions, the fair value of
the bonds at December 31, 2018,...
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