8. Risk and return Suppose Juanita is choosing how to allocate her portfolio between two asset classes: risk-free government bonds and a risky group of diversified stocks. The following table shows the risk and return associated with different combinations of stocks and bonds. Combination A B с D E Fraction of Portfolio in Diversified Stocks (Percent) 0 25 50 75 100 Average Annual Return (Percent) 2.00 3.50 5.00 6.50 8.00 Standard Deviation of Portfolio Return (Risk) (Percent) 0 5 10 15 Suppose Juanita currently allocates 75% of her portfolio to a diversified group of stocks and 25% of her portfoli chooses combination D. She wants to reduce the level of risk associated with her portfolio from a standard devi 20 If Juanita reduces her portfolio's exposure to risk by opting for a smaller share of stocks, he must also accept a lower higher lower average annual return. ree bonds; that is, she 4 to a standard deviation of
8. Risk and return Suppose Juanita is choosing how to allocate her portfolio between two asset classes: risk-free government bonds and a risky group of diversified stocks. The following table shows the risk and return associated with different combinations of stocks and bonds. Combination A B с D E Fraction of Portfolio in Diversified Stocks (Percent) 0 25 50 75 100 Average Annual Return (Percent) 2.00 3.50 5.00 6.50 8.00 Standard Deviation of Portfolio Return (Risk) (Percent) 0 5 10 15 Suppose Juanita currently allocates 75% of her portfolio to a diversified group of stocks and 25% of her portfoli chooses combination D. She wants to reduce the level of risk associated with her portfolio from a standard devi 20 If Juanita reduces her portfolio's exposure to risk by opting for a smaller share of stocks, he must also accept a lower higher lower average annual return. ree bonds; that is, she 4 to a standard deviation of
Chapter8: Analysis Of Risk And Return
Section: Chapter Questions
Problem 13QTD
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