A pension fund manager is considering three mutual funds. The first is a stock fund, the second is a long-term bond fund, and the third is a money market fund that provides a safe return of 6%. The characteristics of the risky funds are as follows: Stock fund (S) Bond fund (B) Expected Return 24% 14 Standard Deviation 33% 22 The correlation between the fund returns is 0.14. You require that your portfolio yield an expected return of 16%, and that it be efficient, that is, on the steepest feasible CAL. Required: a. What is the standard deviation of your portfolio? b. What is the proportion invested in the money market fund and each of the two risky funds?

A pension fund manager is considering three mutual funds. The first is a stock fund, the second is a long-term bond fund, and the third is a money market fund that provides a safe return of 6%. The characteristics of the risky funds are as follows: Stock fund (S) Bond fund (B) Expected Return 24% 14 Standard Deviation 33% 22 The correlation between the fund returns is 0.14. You require that your portfolio yield an expected return of 16%, and that it be efficient, that is, on the steepest feasible CAL. Required: a. What is the standard deviation of your portfolio? b. What is the proportion invested in the money market fund and each of the two risky funds?

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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Assume that you manage a risky portfolio with an expected rate of return of 17% and a standard deviation of 27%. The T-bill rate is 7%. Your risky portfolio includes the following investments in the given proportions: Stock A Stock B Stock C 27% 33 40 Your client decides to invest in your risky portfolio a proportion (y) of his total investment budget with the remainder in a T-bill money market fund so that his overall portfolio will have an expected rate of return of 15%. Required: a. What is the proportion y? (Round your answer to 1 decimal place.) Proportion y 0.8 X %
You manage a risky portfolio with an expected rate of return of 14% and a standard deviation of 30%. The T-bill rate is 2%. Your client chooses to invest 65% of a portfolio in your fund and 35% in a T-bill money market fund. What is the reward-to-volatility (Sharpe) ratio (S) of your risky portfolio? Your client's? Note: Do not round intermediate calculations. Round your answers to 4 decimal places. Your reward-to-volatility (Sharpe) ratio Client's reward-to-volatility (Sharpe) ratio
A pension fund manager is considering three mutual funds. The first is a stock fund, the second is a long-term bond fund, and the third is a money market fund that provides a safe return of 4%. The characteristics of the risky funds are as follows: Expected Return Standard Deviation 234 14 294 17 Stock fund (5) Bond fund (8) The correlation between the fund returns is 0.12. You require that your portfolio yield an expected return of 12%, and that it be efficient, that is, on the steepest feasible CAL a. What is the standard deviation of your portfolio? (Round your answer to 2 decimal places) Standard deviation b. What is the proportion invested in the money market fund and each of the two risky funds? (Round your answers to 2 decimal places.) Money market fund Stocks Bonds Proportion Invested *** Check my work
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You manage a risky portfolio with an expected rate of return of 19% and a standard deviation of 32%. The T-bill rate is 7%. Your client chooses to invest 50% of a portfolio in your fund and 50% in a T-bill money market fund. Suppose that your risky portfolio includes the following investments in the given proportions: Stock A Stock B Stock C 33 % 32 % 35 % What are the investment proportions of your client's overall portfolio, including the position in T-bills? (Round your answers to 1 decimal place.) T-Bills Stock A Stock B Stock C Investment Proportions % % % %
A second version of the Markowitz portfolio model maximizes expected return subject to a constraint that the variance of the portfolio must be less than or equal to some specified amount. Consider the Hauck Financial Service data. Click on the datafile logo to reference the data. Annual Return (%) Mutual Fund Year 1 Year 2 Year 3 Year 4 Year 5 Foreign Stock 10.06 13.12 13.47 45.42 -21.93 Intermediate-Term Bond 17.64 3.25 7.51 -1.33 7.36 Large-Cap Growth 32.41 18.71 33.28 41.46 -23.26 Large-Cap Value 32.36 20.61 12.93 7.06 -5.37 Small-Cap Growth 33.44 19.40 3.85 58.68 -9.02 Small-Cap Value 24.56 25.32 -6.70 5.43 17.31 (a) Construct this version of the Markowitz model for a maximum variance of 38. Let: FS = proportion of portfolio invested in the foreign stock mutual fund IB = proportion of portfolio invested in the intermediate-term bond fund LG = proportion of portfolio invested in the large-cap growth fund LV = proportion of portfolio invested in the large-cap value fund SG =…
You are a Portfolio Manager who has a Stock Fund, a Bond Fund and a Treasury Bill Fund. The Stock Fund has an expected return of 12.2% and an expected volatility of 18.8%. The Bond Fund has an expected return of 4.3% and an expected volatility of 7.1%. The T-Bill fund will yield a return of 2.7%. The correlation coefficient between the two risky assets is 0.19. If you created a Risky Portfolio from the two risky assets and if your allocation was 40/60 Bonds/Stocks, what would be the expected return of the Risky Portfolio? Group of answer choices 9.04% 7.46% 8.25% 6.34% None of the above
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Consider the information on the market, the risk-free asset, and a mutual fund. You want to build a two-asset portfolio comprising the market portfolio and the risk-free asset such that your portfolio beta is the same as the mutual fund. What is the portfolio weight on the market in your portfolio? Mutual Fund Market Risk Free E(k) 11.1% 8.5% 2.0% Beta 1.4 1 0
A pension fund manager is considering three mutual funds. The first is a stock fund, the second is a long-term bond fund, and the third is a money market fund that provides a safe return of 8%. The characteristics of the risky funds are as follows: Stock fund (S) Bond fund (B) The correlation between the fund returns is 0.11. Expected Return 19% 12 Required: a-1. What are the investment proportions in the minimum-variance portfolio of the two risky funds? a-2. What are the expected value and standard deviation of the minimum-variance portfolio rate of return? Req A1 Complete this question by entering your answers in the tabs below. Reg A2 What are the investment proportions in the minimum-variance portfolio of the two risky funds? Note: Do not round intermediate calculations. Enter your answers as decimals rounded to 4 places. Portfolio invested in the stock Portfolio invested in the bond Standard Deviation 32% 15 Req A1 A pension fund manager is considering three mutual funds. The…

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