Question
In: Finance
Assume the following information pertains to three mutual funds FUND Expected Return Standard Deviation of Return...
- Assume the following information pertains to three mutual funds
|
FUND |
Expected Return |
Standard Deviation of Return |
|
U.S. Bond |
6% |
12% |
|
U.S. Equity |
11% |
20% |
U.S. REIT 8% 18%
Assume that the correlation between U.S. Bond and U.S. Equity is 10%, the correlation between U.S. Bond and U.S. REIT is 70%, and the correlation between U.S. Equity and U.S. REIT is 60%.
a) What is the standard deviation of this portfolio of 20% Bond, 20% REIT and 60% Equity?
B) Now assume there is a risk-free asset with return = 3% and standard deviation = 0. What is the Sharpe ratio of the
portfolio 20% Bond, 20% REIT and 60% Equity?
Solutions
Expert Solution
a. Standard deviation of portfolio with 3 assets is calculated by using a tricky formula shared below
Solution - IMAGE #1,2,and 3
b. Sharpe Ratio = (Expected portfolio returns - Risk free rate)/Standard deviation of portfolio's excess return
Solution b starts from mid of image #3 till image #4
jeff jeffy answered 1 year agoRelated Solutions
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r
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