Assume you are considering a portfolio containing Asset 1 and Asset 2. Asset 1 will represent 42% of the dollar value of the portfolio, and asset 2 will account for the other 58%. Assume that the portfolio is rebalanced at the end of each year. The expected returns over the next 6 years, 2021-2026, for each of these assets are summarized in the following table: a. Calculate the expected portfolio return, rp, for each of the 6 years. b. Calculate the average expected portfolio return, p, over the 6-year period. c. Calculate the standard deviation of expected portfolio returns, sp, over the 6-year period. d. Assume that asset 1 represents 58% of the portfolio and asset 2 is 42%. Calculate the average expected return and standard deviation of expected portfolio returns over the 6-year period. e. Compare your answers in part d to the answers from parts b and c. a. The expected portfolio return, p, for 2021 is%. (Round to two decimal places.) The expected portfolio return, rp. for 2022 is %. (Round to two decimal places.) The expected portfolio return, rp. for 2023 is%. (Round to two decimal places.) %. (Round to two decimal places.) The expected portfolio return, rp, for 2024 is The expected portfolio return, rp, for 2025 is The expected portfolio return, rp, for 2026 is b. The average expected portfolio return, rp, over the 6-year period is %. (Round to two decimal places.) c. The standard deviation of expected portfolio returns, Sp, over the 6-year period is%. (Round to three decimal places.) d. If asset L represents 58% of the portfolio and asset M 42%, the average expected portfolio return, rp, over the 6-year period is %. (Round to If asset L represents 58% of the portfolio and asset M 42%, the standard deviation of expected portfolio returns, s, over the 6-year period is %. (Round to three decimal places.) %. (Round to two decimal places.) %. (Round to two decimal places.) decimal places.)
Assume you are considering a portfolio containing Asset 1 and Asset 2. Asset 1 will represent 42% of the dollar value of the portfolio, and asset 2 will account for the other 58%. Assume that the portfolio is rebalanced at the end of each year. The expected returns over the next 6 years, 2021-2026, for each of these assets are summarized in the following table: a. Calculate the expected portfolio return, rp, for each of the 6 years. b. Calculate the average expected portfolio return, p, over the 6-year period. c. Calculate the standard deviation of expected portfolio returns, sp, over the 6-year period. d. Assume that asset 1 represents 58% of the portfolio and asset 2 is 42%. Calculate the average expected return and standard deviation of expected portfolio returns over the 6-year period. e. Compare your answers in part d to the answers from parts b and c. a. The expected portfolio return, p, for 2021 is%. (Round to two decimal places.) The expected portfolio return, rp. for 2022 is %. (Round to two decimal places.) The expected portfolio return, rp. for 2023 is%. (Round to two decimal places.) %. (Round to two decimal places.) The expected portfolio return, rp, for 2024 is The expected portfolio return, rp, for 2025 is The expected portfolio return, rp, for 2026 is b. The average expected portfolio return, rp, over the 6-year period is %. (Round to two decimal places.) c. The standard deviation of expected portfolio returns, Sp, over the 6-year period is%. (Round to three decimal places.) d. If asset L represents 58% of the portfolio and asset M 42%, the average expected portfolio return, rp, over the 6-year period is %. (Round to If asset L represents 58% of the portfolio and asset M 42%, the standard deviation of expected portfolio returns, s, over the 6-year period is %. (Round to three decimal places.) %. (Round to two decimal places.) %. (Round to two decimal places.) decimal places.)
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:Assume you are considering a portfolio containing Asset 1 and Asset 2. Asset 1 will represent 42% of the dollar value of the portfolio, and asset 2 will account for the other 58%. Assume that the
portfolio is rebalanced at the end of each year. The expected returns over the next 6 years, 2021-2026, for each of these assets are summarized in the following table:
a. Calculate the expected portfolio return, rp, for each of the 6 years.
b. Calculate the average expected portfolio return, rp, over the 6-year period.
c. Calculate the standard deviation of expected portfolio returns, sp, over the 6-year period.
d. Assume that asset 1 represents 58% of the portfolio and asset 2 is 42%. Calculate the average expected return and standard deviation of expected portfolio returns over the 6-year period.
e. Compare your answers in part d to the answers from parts b and c.
a. The expected portfolio return, r, for 2021 is%. (Round to two decimal places.)
The expected portfolio return, rp, for 2022 is
%. (Round to two decimal places.)
The expected portfolio return, rp, for 2023 is
The expected portfolio return, rp, for 2024 is
The expected portfolio return,
for 2025 is
p₁
The expected portfolio return, rp, for 2026 is
b. The average expected portfolio return, rp, over the 6-year period is %. (Round to two decimal places.)
c. The standard deviation of expected portfolio returns, Sp, over the 6-year period is%. (Round to three decimal places.)
d. If asset L represents 58% of the portfolio and asset M 42%, the average expected portfolio return, rp, over the 6-year period is %. (Round to two decimal places.)
If asset L represents 58% of the portfolio and asset M 42%, the standard deviation of expected portfolio returns, Sp, over the 6-year period is %. (Round to three decimal places.)
%. (Round to two decimal places.)
%. (Round to two decimal places.)
%. (Round to two decimal places.)
%. (Round to two decimal places.)
Transcribed Image Text:Assume you are considering a portfolio containing Asset 1 and Asset 2. Asset 1 will r
portfolio is rebalanced at the end of each year. The expected returns over the next 6
a. Calculate the expected portfolio return, rp, for each of the 6 years.
b. Calculate the average expected portfolio return, rp, over the 6-year period.
c. Calculate the standard deviation of expected portfolio returns, sp, over the 6-year
d. Assume that asset 1 represents 58% of the portfolio and asset 2 is 42%. Calculate
e. Compare your answers in part d to the answers from parts b and c.
%. (Round to two decimal places.)
The expected portfolio return, rp, for 2025 is
The expected portfolio return, rp, for 2026 is
%. (Round to two decimal places.)
b. The average expected portfolio return, rp, over the 6-year period is%. (Round
c. The standard deviation of expected portfolio returns, Sp, over the 6-year period is
d. If asset L represents 58% of the portfolio and asset M 42%, the average expected
Data table
(Click on the icon here
into a spreadsheet.)
in order to copy the contents of the data table below
Year
2021
2022
2023
2024
2025
2026
Print
Projected Return
Asset L
- 8%
15%
26%
3%
- 11%
31%
Asset M
31%
7%
-7%
20%
35%
- 17%
Done
If asset L represents 58% of the portfolio and asset M 42%, the standard deviation of expected portfolio returns, sp, over the 6-year period is %. (Round to three decimal places.)
e. Compare your answers in part d to the answers from parts b and c. Which of the following statements is correct? (Select the best choice below.)
the
A. Compared to part d, in parts b and c we are getting a higher return at the cost of a higher standard deviation. This occurs because we are investing more heavily in the riskier asset.
B. Compared to part d, in parts b and c we are getting a lower return at the cost of a higher standard deviation. This occurs because we are investing more heavily in the riskier asset.
C. Compared to part d, in parts b and c we are getting a higher return at the cost of a lower standard deviation. This occurs because we are investing more heavily in the riskier asset.
D. Compared to part d, in parts b and c we are getting a higher return at the cost of a higher standard deviation. This occurs because we are investing more heavily in the less risky asset.
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