J.P. Morgan Asset Management publishes information about financial investments. Overthe past 10 years, the expected return for the S&P 500 was 5.04% with a standard deviation of 19.45% and the expected return over that same period for a core bonds fund was5.78% with a standard deviation of 2.13% (J.P. Morgan asset Management, guide to theMarkets, 1st quarter, 2012). The publication also reported that the correlation betweenthe S&P 500 and core bonds is −.32. You are considering portfolio investments that arecomposed of an S&P 500 index fund and a core bonds fund.a. Using the information provided, determine the covariance between the S&P 500 andcore bonds.b. Construct a portfolio that is 50% invested in an S&P 500 index fund and 50% in a corebonds fund. In percentage terms, what are the expected return and standard deviationfor such a portfolio?c. Construct a portfolio that is 20% invested in an S&P 500 index fund and 80% investedin a core bonds fund. In percentage terms, what are the expected return and standarddeviation for such a portfolio?

MATLAB: An Introduction with Applications
6th Edition
ISBN:9781119256830
Author:Amos Gilat
Publisher:Amos Gilat
Chapter1: Starting With Matlab
Section: Chapter Questions
Problem 1P
icon
Related questions
icon
Concept explainers
Topic Video
Question

J.P. Morgan Asset Management publishes information about financial investments. Over
the past 10 years, the expected return for the S&P 500 was 5.04% with a standard deviation of 19.45% and the expected return over that same period for a core bonds fund was
5.78% with a standard deviation of 2.13% (J.P. Morgan asset Management, guide to the
Markets, 1st quarter, 2012). The publication also reported that the correlation between
the S&P 500 and core bonds is −.32. You are considering portfolio investments that are
composed of an S&P 500 index fund and a core bonds fund.
a. Using the information provided, determine the covariance between the S&P 500 and
core bonds.
b. Construct a portfolio that is 50% invested in an S&P 500 index fund and 50% in a core
bonds fund. In percentage terms, what are the expected return and standard deviation
for such a portfolio?
c. Construct a portfolio that is 20% invested in an S&P 500 index fund and 80% invested
in a core bonds fund. In percentage terms, what are the expected return and standard
deviation for such a portfolio?

Expert Solution
trending now

Trending now

This is a popular solution!

steps

Step by step

Solved in 4 steps with 7 images

Blurred answer
Knowledge Booster
Centre, Spread, and Shape of a Distribution
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, statistics and related others by exploring similar questions and additional content below.
Similar questions
Recommended textbooks for you
MATLAB: An Introduction with Applications
MATLAB: An Introduction with Applications
Statistics
ISBN:
9781119256830
Author:
Amos Gilat
Publisher:
John Wiley & Sons Inc
Probability and Statistics for Engineering and th…
Probability and Statistics for Engineering and th…
Statistics
ISBN:
9781305251809
Author:
Jay L. Devore
Publisher:
Cengage Learning
Statistics for The Behavioral Sciences (MindTap C…
Statistics for The Behavioral Sciences (MindTap C…
Statistics
ISBN:
9781305504912
Author:
Frederick J Gravetter, Larry B. Wallnau
Publisher:
Cengage Learning
Elementary Statistics: Picturing the World (7th E…
Elementary Statistics: Picturing the World (7th E…
Statistics
ISBN:
9780134683416
Author:
Ron Larson, Betsy Farber
Publisher:
PEARSON
The Basic Practice of Statistics
The Basic Practice of Statistics
Statistics
ISBN:
9781319042578
Author:
David S. Moore, William I. Notz, Michael A. Fligner
Publisher:
W. H. Freeman
Introduction to the Practice of Statistics
Introduction to the Practice of Statistics
Statistics
ISBN:
9781319013387
Author:
David S. Moore, George P. McCabe, Bruce A. Craig
Publisher:
W. H. Freeman