Question

In: Finance

HW 7 16. Madison would like to form a portfolio between Microsoft (Ticker: MSFT) and a...

HW 7 16. Madison would like to form a portfolio between Microsoft (Ticker: MSFT) and a bond index fund. The following table shows the performance of the two assets in each state of the economy.

Prob. MSFT(%) Bond(%)

Recession           0.1     -40       12

Normal               0.7     20        6

Boom                 0.2     50        -2

Suppose the standard deviation of Microsoft is 23.24% and the standard deviation of the bond fund is 3.92%. Madison will form a portfolio which invests 40% into Microsoft and 60% into the bond fund.What is the standard deviation and sharpe ratio of the portfolio if risk-free rate is 4%?

Solutions

Expert Solution

Please refer to below spreadsheet for calculation and answer. Cell reference also provided.

Cell reference -


Related Solutions

what is the minimum-risk (standard deviation) portfolio of AT&T and Microsoft if the correlation between the...
what is the minimum-risk (standard deviation) portfolio of AT&T and Microsoft if the correlation between the two stocks is 0? 0.5? 1? -1? what do you notice about the change in the allocations between AT&T and Microsoft as the correlation coefficient moves from -1 to 0? to 0.5? to +1? why might this be? what is the standard deviation of each these minimum-risk portfolios?
What would the most fully diversified portfolio look like? Imagine a portfolio that is diversified. NO,...
What would the most fully diversified portfolio look like? Imagine a portfolio that is diversified. NO, more diversified than that. Okay, NO, more diversified still! Until you have reached the most fully diversified portfolio of which you can conceive. Describe it: What is in it? What is not?
7. HolmesWatson (HW) is considering what the effect would be of reporting its liabilities under IFRS...
7. HolmesWatson (HW) is considering what the effect would be of reporting its liabilities under IFRS rather than U.S. GAAP. The following facts apply: HW is defending against a lawsuit and believes it is virtually certain to lose in court. If it loses the lawsuit, management estimates it will need to pay a range of damages that falls between $6,300,000 and $11,300,000, with each amount in that range equally likely. HW is defending against another lawsuit that is identical to...
If a compound were to form between Ca and Cl a. Ca would form a 1+...
If a compound were to form between Ca and Cl a. Ca would form a 1+ charged ion b. Ca would form a 2+ charged ion c. Cl would form a 1+ charged ion d. No ions will form e. We cannot tell from the information provided
2. Mr. Brown would like to create a portfolio that is composed of Asset 1 and...
2. Mr. Brown would like to create a portfolio that is composed of Asset 1 and Asset 2. The correlation coefficient of Asset 1 and Asset 2 is .70. You are given the following information about Asset 1 and Asset 2. E(R1)   =   0.12                      E(s1)   =   0.04 E(R2)   =   0.16                      E(s2)   =   0.06             Mr. Brown is considering three possible combinations of Asset 1 and Asset 2.             Option 1 :                   w1 = 0.75                   w2 = 0.25             Option...
You have $17,200 to invest and would like to create a portfolio with an expected return...
You have $17,200 to invest and would like to create a portfolio with an expected return of 11 percent. You can invest in Stock K with an expected return of 9.9 percent and Stock L with an expected return of 13.5 percent. How much will you invest in Stock K? $10,949.07 $4,598.61 $7,007.41 $5,255.56 $11,944.44 Based on the following information, what is the standard deviation of returns? State of Economy Probability of State of Economy Rate of Return if State...
A portfolio gives at 10% return with a standard deviation of 18%. You would like the...
A portfolio gives at 10% return with a standard deviation of 18%. You would like the standard deviation to drop to 14%. What should you do? What should you do if you want the standard deviation to rise to 23%. OUR NOTES give the answers, however, I don't understand how they reached the numbers. The answer to the first part is to add more risk-free assets until they account for 4/18 of the portfolio The answer to the second part...
I would like to have a response on this form or post for my psychology class....
I would like to have a response on this form or post for my psychology class. My paper will examine Autism throughout the lifespan. Specifically I am trying to determine if there is a time throughout one's lifetime where techniques to 'treat' an Autism disorder are most effective. While there are many symptoms of Autism including social, cognitive and even psychological 'deficiencies' compared to an individual without autism, I am only looking at treating the individuals cognitions, or at least...
You would like to have $48,000 in 16 years. To accumulate this amount you plan to...
You would like to have $48,000 in 16 years. To accumulate this amount you plan to deposit each year an equal sum in the bank, which will earn 7 percent interest compounded annually. Your first payment will be made at the end of the year. a. How much must you deposit annually to accumulate this amount? b. If you decide to make a large lump-sum deposit today instead of the annual deposits, how large should this lump-sum deposit be? (Assume...
Suppose two individuals, Jon and David, form a community and would like to construct a communal...
Suppose two individuals, Jon and David, form a community and would like to construct a communal fort that would protect them from attacks. They both consume good X, a private good, and the protection of the fort, P. One unit of good X costs 1 unit of currency, and one unit of P costs 2 units of currency. Both Jon and David have an income of 100 and a utility function of the form: U = log(Xi) + 2 ×...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT