+1-415-315-9853

info@mywordsolution.com

## Finance

 Basic Finance Corporate Finance Financial Management Financial Econometrics Portfolio Management Risk Management Public Finance Business Law & Ethics

Consider the following capital market: a risk-free asset yielding 2.00% per year and a mutual fund consisting of 75% stocks and 25% bonds. The expected return on stocks is 7.00% per year and the expected return on bonds is 4.50% per year. The standard deviation of stock returns is 17.00% and the standard deviation of bond returns 10.00%. The stock, bond and risk-free returns are all uncorrelated.

1. What is the expected return on the mutual fund?

2. What is the standard deviation of returns for the mutual fund?
Now, assume the correlation between stock and bond returns is 0.70 and the correlations between stock and risk-free returns and between the bond and risk-free returns are 0 (by construction, correlations with the risk-free asset are always zero).

3. What is the standard deviation of returns for the mutual fund? Is it higher or lower than the standard deviation found in part 2? Why?
Now, assume that the standard deviation of the mutual fund portfolio is exactly 14.00% per year and a potential customer has a risk-aversion coefficient of 2.5.

4. What correlation between the stock and bond returns is consistent with this portfolio standard deviation?

5. What is the optimal allocation to the risky mutual fund (the fund with exactly 14.00% standard deviation) for this investor?

6. What is the expected return on the complete portfolio?

7. What is the standard deviation of the complete portfolio?

8. What is the Sharpe ratio of the complete portfolio?

Basic Finance, Finance

• Category:- Basic Finance
• Reference No.:- M941540

Have any Question?

## Related Questions in Basic Finance

### When the adjustable mirror on the michelson interferometer

When the adjustable mirror on the Michelson Interferometer is moved 20 wavelengths, how many fringe pattern shifts would be counted?

### Five years ago in conjunction with a financial

Five years ago, in conjunction with a financial restructuring, Laurenberg Electric sold a \$100 million issue of bonds at a coupon interest rate of 12 percent. Each bond came with 30 detachable warrants. Each warrant enti ...

### Evaluate the expression uwxyz exactly as parenthesized ie

Evaluate the expression (u+)+(w+x)+(y+z) exactly as parenthesized (i.e., do not use the commutative or associative laws to reorder the additions). Give register-level machine code to provide the maximum possible parallel ...

### Company x has a 7 percent semiannual coupon bonds that

Company X has a 7 percent semiannual coupon bonds that sells for \$976, has a face value of \$1,000, and has a yield to maturity of 8.079 percent. How many years will it be until this bond matures?

### Toynbspcorp produces and sells pinball machines its average

Toy Corp. produces and sells pinball machines. Its average selling price is currently \$5,400 per game. Based on a review of its projected financial statements, the company's variable costs are \$2,800 per unit sold and to ...

### Finance assignmentpoveide a sulotion with it i dont want

Finance Assignment Poveide a sulotion with it I don't want only the answer Suppose that the current spot exchange rate is €1.50/£ and the one-year forward exchange rate is €1.60/£. The one-year interest rate is 5.4% in e ...

### Future value of annuity twins jessica and joshua both 25

Future Value of Annuity. Twins Jessica and Joshua, both 25, graduated from college and began working in the family restaurant business. The first year, Jessica began putting \$2,000 per year in an individual retirement ac ...

### 1 speculate on why accounting standards do not mandate full

1. Speculate on why accounting standards do not mandate full financial statements in interim reports. 2. Why may comprehensive income fluctuate substantially more than net income? 3. Why can pro-forma financial informati ...

### For each of the following research goals identify which of

For each of the following research goals, identify which of the descriptive research designs would be most appropriate: a. To describe how peer counseling affects a severely depressed teenager. b. To describe the social ...

### We have conducted an election poll of 600 likely voters

We have conducted an election poll of 600 likely voters, collected as randomly as possible. The 95% confidence interval (CI) for those planning to vote for Senator Smith is about 55% +/- 4%. How many additional likely vo ...

• 13,132 Experts

## Looking for Assignment Help?

Start excelling in your Courses, Get help with Assignment

Write us your full requirement for evaluation and you will receive response within 20 minutes turnaround time.

### WalMart Identification of theory and critical discussion

Drawing on the prescribed text and/or relevant academic literature, produce a paper which discusses the nature of group

### Section onea in an atwood machine suppose two objects of

SECTION ONE (a) In an Atwood Machine, suppose two objects of unequal mass are hung vertically over a frictionless

### Part 1you work in hr for a company that operates a factory

Part 1: You work in HR for a company that operates a factory manufacturing fiberglass. There are several hundred empl

### Details on advanced accounting paperthis paper is intended

DETAILS ON ADVANCED ACCOUNTING PAPER This paper is intended for students to apply the theoretical knowledge around ac

### Create a provider database and related reports and queries

Create a provider database and related reports and queries to capture contact information for potential PC component pro