3. Suppose that for some reason you are required to invest in 50% of your portfolio in bonds and 50% in stocks. If the covariance of your portfolio is 15%. a. What must be your correlation coefficient between stocks and bond returns? And SD of stocks and bonds are 25 and 12 respectively. b. What is the expected return of your portfolio if expected return on bonds and stocks are 6% and 10% respectively? c. Suppose that the correlation between stocks and bond returns is 0.22 but you are free to choose which ever portfolio proportions you desire, are you likely to be better or worse off than you were in part (a)?

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
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3. Suppose that for some reason you are required to invest in 50% of your portfolio in
bonds and 50% in stocks. If the covariance of your portfolio is 15%. a. What must be your
correlation coefficient between stocks and bond returns? And SD of stocks and bonds are
25 and 12 respectively. b. What is the expected return of your portfolio if expected return
on bonds and stocks are 6% and 10% respectively? c. Suppose that the correlation
between stocks and bond returns is 0.22 but you are free to choose which ever portfolio
proportions you desire, are you likely to be better or worse off than you were in part (a)?
Transcribed Image Text:3. Suppose that for some reason you are required to invest in 50% of your portfolio in bonds and 50% in stocks. If the covariance of your portfolio is 15%. a. What must be your correlation coefficient between stocks and bond returns? And SD of stocks and bonds are 25 and 12 respectively. b. What is the expected return of your portfolio if expected return on bonds and stocks are 6% and 10% respectively? c. Suppose that the correlation between stocks and bond returns is 0.22 but you are free to choose which ever portfolio proportions you desire, are you likely to be better or worse off than you were in part (a)?
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