Question
In: Statistics and Probability
Suppose that you want to create a portfolio that consists of a corporate bond fund, X,...
Suppose that you want to create a portfolio that consists of a corporate bond fund, X, and a common stock fund, Y. For a $1,000 investment, the expected return for X is $75 and the expected return for Y is $ 90 The variance for X is 1,725 and the variance for Y is 12,225. The covariance of X and Y is 4,583.
a. The portfolio risk is $
b. Compute the portfolio expected return and portfolio risk if you put $ 500 in each fund.The portfolio expected return is
(Type an integer or a decimal.)
The portfolio risk is
(Round to two decimal places as needed.)
c. Compute the portfolio expected return and portfolio risk if you put $600 in the corporate bond fund and $400 in the common stock fund.The portfolio expected return is
(Type an integer or a decimal.)
The portfolio risk is
(Round to two decimal places as needed.)
Solutions
orchestra answered 1 year agoRelated Solutions
Suppose that you want to create a portfolio that consists of stock X and stock Y....
Suppose that you want to create a portfolio that consists of
stock X and stock Y. For a $1,000 investment, the expected return
for stock X is $ 71 and the expected return for stock Y is $ 102.
The variance for stock X is 2,700 and the variance for stock Y is
8,625. The covariance of stock X and stock Y is 5,976.
Complete parts (a) through (c).
a.) Compute the portfolio expected return and portfolio risk if
the...
You want to buy a corporate bond for your portfolio. The bond is 10 year, $1,000...
You want to buy a corporate bond for your portfolio. The bond is
10 year, $1,000 par value and makes semi-annual coupon payments.
The annual coupon rate is 6%. It has been four years since it was
issued. Market interest rates have dropped to 4%. (10 pt.s)
What is the price the bond would currently be trading at?
Five years after issue the company has run into trouble and its
bonds are now trading at 97. What is the yield...
You invest your money in a portfolio that consists of 70% of Fund X and 30%...
You invest your money in a portfolio that consists of 70% of
Fund X and 30% of Fund B. The annual return for X is 10% and the
standard deviation is 15%. The annual return for Y is 9% and the
standard deviation is 19%. The correlation between X and Y is
0.60.
a. Compute the return and standard deviation of your portfolio
invested?
b. Assuming you hold this portfolio for over 20 years, what is
the probability of return...
Suppose you want to invest in a portfolio comprising an index fund that reproduces the...
Suppose you want to invest in a portfolio comprising an index
fund that reproduces the market portfolio (such as the S&P/TSX
composite index) and also T-bills. Your investment budget is
$10,000. The market index has an expected return of 16% and
standard deviation of 12%, and the return on T-bills is 4%. Your
goal is to get an expected return of 14% on the combined portfolio
(Index fund and T-bills).
How much do you need to invest in the...
Suppose you are a fund manager, currently managing a diversified risky portfolio that consists of equity...
Suppose you are a fund manager, currently managing a diversified
risky portfolio that consists of equity index fund A (40%), bond
index fund B (30%), and international equity fund C (30%). The
portfolio has an expected rate of return of 12% and a standard
deviation of 25%. Lisa, a project manager in IBM, is one of your
clients. After some discussion with her, you suggest Lisa to invest
her total $800,000 personal wealth in your fund and a T-bill money...
You must choose one of the following: a stock fund, a bond fund, or a portfolio...
You must choose one of the following: a stock fund, a bond fund,
or a portfolio of 50% stock and 50% bond. The expected returns are
13% and 8% for the stock and bond fund, respectively, and the
standard deviations are 20% and 16%, with a correlation of 0.40
between the two funds. You can also borrow or lend at 5%. Relying
on mean-variance analysis, determine the order of your preference
from most preferred to least preferred.
You plan to invest $1,000 in a corporate bond fund or in a common stock fund....
You plan to invest $1,000 in a corporate bond fund or in a
common stock fund. The table presents the annual return (per
$1,000) of each of these investments under different economic
conditions and the probability that each of these economic
conditions will occur. Complete parts (a) through (d) below.
Probability Economic_Condition
Corporate_Bond_Fund Common_Stock_Fund
0.01 Extreme_recession -200
-980
0.09 Recession -70 -300
0.15 Stagnation 30 -100
0.35 Slow_growth 80 130
0.30 Moderate_growth 110
150
0.10 High_growth 120 350
Calculate the...
You plan to invest $1,000 in a corporate bond fund or in a common stock fund....
You plan to invest $1,000 in a corporate bond fund or in a
common stock fund. The table presents the annual return (per
$1,000) of each of these investments under different economic
conditions and the probability that each of these economic
conditions will occur.
Probability Economic_Condition
Corporate_Bond_Fund Common_Stock_Fund
0.01 Extreme_recession -250 -999
0.09 Recession -60 -300
0.20 Stagnation 30 -150
0.30 Slow_growth 80 70
0.35 Moderate_growth 120 200
0.05 High_growth 150 350
Calculate the expected return for the corporate bond...
Suppose you are the money manager of a $4.57 million investment fund. The fund consists of...
Suppose you are the money manager of a $4.57 million investment
fund. The fund consists of four stocks with the following
investments and betas:
Stock
Investment
Beta
A
$ 240,000
1.50
B
400,000
(0.50)
C
980,000
1.25
D
2,950,000
0.75
If the market's required rate of return is 12% and the risk-free
rate is 4%, what is the fund's required rate of return? Do not
round intermediate calculations. Round your answer to two decimal
places.
Suppose you are the money manager of a $4.37 million investment fund. The fund consists of...
Suppose you are the money manager of a $4.37 million investment
fund. The fund consists of four stocks with the following
investments and betas:
Stock
Investment
Beta
A
$ 200,000
1.50
B
320,000
(0.50)
C
1,300,000
1.25
D
2,550,000
0.75
If the market's required rate of return is 10% and the risk-free
rate is 3%, what is the fund's required rate of return? Do not
round intermediate calculations. Round your answer to two decimal
places.
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