7. Assume you currently have all your wealth ($1MM) invested in the Vanguard 500 fund, and that you expect to earn an annual return of 7%, with a standard deviati returns of 20%. Since you have become more risk averse, you decide to shift $25- from the Vanguard 500 index fund to Treasury bills. The T-bill rate is 1.5%. Esti

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
icon
Related questions
Question
7. Assume you currently have all your wealth ($1MM) invested in the Vanguard 500 index
fund, and that you expect to earn an annual return of 7%, with a standard deviation of
returns of 20%. Since you have become more risk averse, you decide to shift $250,000
from the Vanguard 500 index fund to Treasury bills. The T-bill rate is 1.5%. Estimate
the expected return and standard deviation of your new portfolio.
Transcribed Image Text:7. Assume you currently have all your wealth ($1MM) invested in the Vanguard 500 index fund, and that you expect to earn an annual return of 7%, with a standard deviation of returns of 20%. Since you have become more risk averse, you decide to shift $250,000 from the Vanguard 500 index fund to Treasury bills. The T-bill rate is 1.5%. Estimate the expected return and standard deviation of your new portfolio.
Expert Solution
steps

Step by step

Solved in 2 steps

Blurred answer
Knowledge Booster
Risk and Return
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.
Similar questions
  • SEE MORE QUESTIONS
Recommended textbooks for you
Essentials Of Investments
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
FUNDAMENTALS OF CORPORATE FINANCE
FUNDAMENTALS OF CORPORATE FINANCE
Finance
ISBN:
9781260013962
Author:
BREALEY
Publisher:
RENT MCG
Financial Management: Theory & Practice
Financial Management: Theory & Practice
Finance
ISBN:
9781337909730
Author:
Brigham
Publisher:
Cengage
Foundations Of Finance
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education