3) (4 pts) Assume you have constructed an optimal risky portfolio that consists of the following asset classes: The risky portfolio has an expected return of 11% and a standard deviation of 16%. Weights. Large Stocks Mid-Cap Stocks Corp bonds 45% 15% 40% There are also risk-free (cash) investments available that offer a 3% return. You have $100,000 to invest and you are somewhat risk adverse and you are wanting to reduce your overall volatility (standard deviation) to 12.8%. How will your $100,000 be allocated in order to achieve a standard deviation of 12.8% on the complete portfolio and what is the expected return of your position.
3) (4 pts) Assume you have constructed an optimal risky portfolio that consists of the following asset classes: The risky portfolio has an expected return of 11% and a standard deviation of 16%. Weights. Large Stocks Mid-Cap Stocks Corp bonds 45% 15% 40% There are also risk-free (cash) investments available that offer a 3% return. You have $100,000 to invest and you are somewhat risk adverse and you are wanting to reduce your overall volatility (standard deviation) to 12.8%. How will your $100,000 be allocated in order to achieve a standard deviation of 12.8% on the complete portfolio and what is the expected return of your position.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:3) (4 pts) Assume you have constructed an optimal risky portfolio that consists of the following asset classes:
The risky portfolio has an expected return of 11% and a standard deviation of 16%.
Weights
Large Stocks
Mid-Cap Stocks
Corp bonds
There are also risk-free (cash) investments available that offer a 3% return.
You have $100,000 to invest and you are somewhat risk adverse and you are wanting to reduce your
overall volatility (standard deviation) to 12.8%. How will your $100,000 be allocated in order to achieve a
standard deviation of 12.8% on the complete portfolio and what is the expected return of your position.
45%
15%
40%
Large Stocks - S
Mid-Cap Stocks = $_
Expected return of your position is equal to
Cash-S
Corp Bonds= $
%
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