You are considering investing in three different assets. The first is a stock, the second is a long-term government bond and the third is a T-bill money market fund that yields a sure rate of 5%.

You are considering investing in three different assets. The first is a stock, the second is a long-term government bond and the third is a T-bill money market fund that yields a sure rate of 5%. The probability distributions of both the risky assets: Expected Return Standard Deviation Stock (S) er=15% sd=32% Bond (B) er=9% st=23 The correlation between the stock and bond returns is 0.10. A. Compute the expected return and standard deviation of the optimal risky portfolio (aka optimal tangency portfolio).

Solutions

Expert Solution

jeff jeffy answered 2 years ago

Next > < Previous

Related Solutions

A pension fund manager is considering three assets. The first is a stock fund, the second...

A pension fund manager is considering three assets. The first is a stock fund, the second is a long-term government and corporate bond fund, and the third is a T-bill yielding 0.07. The probability distribution of the risky funds is as follows: Expected ret. std. dev. Stock fund 0.18 0.29 Bond fund 0.11 0.11 The correlation between the fund returns is 0.5. What is the weight of stock fund in the optimal risky portfolio? Round your answer to 4 decimal...

A pension fund manager is considering three assets. The first is a stock fund, the second...

A pension fund manager is considering three assets. The first is a stock fund, the second is a long-term government and corporate bond fund, and the third is a T-bill yielding 0.06. The probability distribution of the risky funds is as follows: Expected ret. std. dev. Stock fund 0.18 0.3 Bond fund 0.12 0.14 The correlation between the fund returns is 0.2. What is the expected return of the optimal risky portfolio? Round your answer to 4 decimal places. For...

A pension fund manager is considering three assets. The first is a stock fund, the second...

A pension fund manager is considering three assets. The first is a stock fund, the second is a long-term government and corporate bond fund, and the third is a T-bill yielding 0.05. The probability distribution of the risky funds is as follows: Expected ret. std. dev. Stock fund 0.20 0.29 Bond fund 0.11 0.15 The correlation between the fund returns is 0.4. What is the expected return of the optimal risky portfolio?

A pension fund manager is considering three assets. The first is a stock fund, the second...

A pension fund manager is considering three assets. The first is a stock fund, the second is a long-term government and corporate bond fund, and the third is a T-bill yielding 8%. The probability distribution of the risky funds is as follows: E[r] std. dev. Stock fund 20% 30% Bond fund 12% 15% The correlation between the fund returns is 0.10. What is the investment proportion in the minimum variance portfolio of stock fund? With the same set of assets...

A pension fund manager is considering three assets. The first is a stock fund, the second...

A pension fund manager is considering three assets. The first is a stock fund, the second is a long-term government and corporate bond fund, and the third is a T-bill yielding 8%. The probability distribution of the risky funds is as follows: E[r] std. dev. Stock fund 20% 30% Bond fund 12% 15% The correlation between the fund returns is 0.10. A) What is the investment proportion in the minimum variance portfolio of stock fund? B) Solve numerically for the...

A pension fund manager is considering three assets. The first is a stock fund, the second...

1. A pension fund manager is considering three assets. The first is a stock fund, the...

1. A pension fund manager is considering three assets. The first is a stock fund, the second is a long-term government and corporate bond fund, and the third is a T-bill yielding 0.05. The probability distribution of the risky funds is as follows: Expected ret. std. dev. Stock fund 0.19 0.25 Bond fund 0.09 0.13 The correlation between the fund returns is 0.17. An investor has a risk-aversion of 8. In her optimal complete portfolio (including stocks, bonds, and risk-free...

pension fund manager is considering three mutual funds. The first is a stock fund, the second...

pension fund manager is considering three mutual funds. The first is a stock fund, the second is a long-term government and corporate bond fund, and the third is a T-bill money market fund that yields a sure rate of 4.7%. The probability distributions of the risky funds are: Expected Return Standard Deviation Stock fund (S) 17 % 37 % Bond fund (B) 8 % 31 % The correlation between the fund returns is .1065. Suppose now that your portfolio must...

You are considering investing $1000 in a T-bill that returns 5% and a risky portfolio, P,...

You are considering investing $1000 in a T-bill that returns 5% and a risky portfolio, P, constructed with 2 risky securities, X and Y. The weights of X and Y are 0.60 and 0.40 respectively. X has an expected rate of return of 0.14 and variance 0.01 and Y has an ex- pected rate of return of 0.10 and a variance of 0.0081. You want to form a portfolio with a standard deviation of return of 0.11, can you figure...

Sprockets, Inc. made an investment into three different long term assets. The first was purchased for...

Sprockets, Inc. made an investment into three different long term assets. The first was purchased for 750,000 and will be depreciated at a straight line for five years. The second was an investment of $1,000,000 and will be depreciated using the 5-year MACRS method. The third cost $1,500,000 and will be depreciated utilizing 7-years MACRS. The company’s required rate of return is 10% and the tax rate is 21%. What is the depreciation schedule for the first asset? What is...

Subjects