If your portfolio includes 35 percent of X, 40 percent of Y and 25 percent of Z, answer the following questions: (a) Calculate the portfolio expected return. (b) Calculate the variance and the standard deviation of the portfolio. (c) If the expected T-bill rate is 3.80 percent, calculate the expected risk premium on the portfolio. (d) If the market index fund has the same expected return as your portfolio, without considering any transaction cost, would you consider selling your portfolio and investing the market index fund instead? Explain your thoughts.
If your portfolio includes 35 percent of X, 40 percent of Y and 25 percent of Z, answer the following questions: (a) Calculate the portfolio expected return. (b) Calculate the variance and the standard deviation of the portfolio. (c) If the expected T-bill rate is 3.80 percent, calculate the expected risk premium on the portfolio. (d) If the market index fund has the same expected return as your portfolio, without considering any transaction cost, would you consider selling your portfolio and investing the market index fund instead? Explain your thoughts.
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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Question
If your portfolio includes 35 percent of X, 40 percent of Y and 25 percent of Z, answer
the following questions:
(a) Calculate the portfolio expected return.
(b) Calculate the variance and the standard deviation of the portfolio.
(c) If the expected T-bill rate is 3.80 percent, calculate the expected risk premium
on the portfolio.
(d) If the market index fund has the same expected return as your portfolio, without
considering any transaction cost, would you consider selling your portfolio and
investing the market index fund instead? Explain your thoughts.
Transcribed Image Text:State of Economy
Boom
Normal
Recession
Probability of State
0.3
0.5
0.2
Rate of return when state occurs
Stock X
0.4
0.2
0
Stock Y Stock Z
0.45
0.6
0.15
-0.3
0.08
-0.4
If your portfolio includes 35 percent of X, 40 percent of Y and 25 percent of Z, answer
the following questions:
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