In addition to the information in exercise 29 on the S&P 500 and core bonds, J.P. Morgan Asset Management reported that the expected return for real estate investment trusts (REITs) was 13.07% with a standard deviation of 23.17% (J.P. Morgan asset Management, guide to the Markets, 1st quarter, 2012). The correlation between the S&P 500 and REITs is .74 and the correlation between core bonds and REITs is −.04. You are considering portfolio investments that are composed of an S&P 500 index fund and REITs as well as portfolio investments composed of a core bonds fund and REITs. a. Using the information provided here and in exercise 29, determine the covariance between the S&P 500 and REITs and between core bonds and REITs. b. Construct a portfolio that is 50% invested in an S&P 500 fund and 50% invested in REITs. In percentage terms, what are the expected return and standard deviation for such a portfolio? c. Construct a portfolio that is 50% invested in a core bonds fund and 50% invested in REITs. In percentage terms, what are the expected return and standard deviation for such a portfolio? d. Construct a portfolio that is 80% invested in a core bonds fund and 20% invested in REITs. In percentage terms, what are the expected return and standard deviation for such a portfolio?
Contingency Table
A contingency table can be defined as the visual representation of the relationship between two or more categorical variables that can be evaluated and registered. It is a categorical version of the scatterplot, which is used to investigate the linear relationship between two variables. A contingency table is indeed a type of frequency distribution table that displays two variables at the same time.
Binomial Distribution
Binomial is an algebraic expression of the sum or the difference of two terms. Before knowing about binomial distribution, we must know about the binomial theorem.
In addition to the information in exercise 29 on the S&P 500 and core bonds, J.P. Morgan Asset Management reported that the expected return for real estate investment trusts
(REITs) was 13.07% with a standard deviation of 23.17% (J.P. Morgan asset Management, guide to the Markets, 1st quarter, 2012). The
REITs is .74 and the correlation between core bonds and REITs is −.04. You are considering portfolio investments that are composed of an S&P 500 index fund and REITs as well
as portfolio investments composed of a core bonds fund and REITs.
a. Using the information provided here and in exercise 29, determine the covariance
between the S&P 500 and REITs and between core bonds and REITs.
b. Construct a portfolio that is 50% invested in an S&P 500 fund and 50% invested in
REITs. In percentage terms, what are the expected return and standard deviation for
such a portfolio?
c. Construct a portfolio that is 50% invested in a core bonds fund and 50% invested in
REITs. In percentage terms, what are the expected return and standard deviation for
such a portfolio?
d. Construct a portfolio that is 80% invested in a core bonds fund and 20% invested in
REITs. In percentage terms, what are the expected return and standard deviation for
such a portfolio?
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