Suppose you have some money to invest-for simplicity, $1-and you are planning to put a fraction w into a stock market mutual fund and the rest, 1 w, into a bond mutual fund. Suppose that $1 invested in a stock fund yields R after 1 year and that $1 invested in a bond fund yields Rp. suppose that R, is random with mean 0.08 (8%) and standard deviation 0.07, and suppose that R, is random with mean 0.05 (5%) and standard deviation 0.04. The correlation between R, and R, is 0.27. If you place a fraction w of your money in the stock fund and the rest, 1 the bond fund, then the return on your investment is R=wR, + (1-w)R. - Suppose that w = 0.53. Compute the mean and standard deviation of R. The mean is. (Round your response to three decimal places.) The standard deviation is (Round your response to three decimal places.) w, in

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
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Suppose you have some money to invest-for simplicity, $1-and you are planning to put a fraction w into a stock
market mutual fund and the rest, 1 w, into a bond mutual fund. Suppose that $1 invested in a stock fund yields R
after 1 year and that $1 invested in a bond fund yields Rp. suppose that R, is random with mean 0.08 (8%) and
standard deviation 0.07, and suppose that R, is random with mean 0.05 (5%) and standard deviation 0.04. The
correlation between R. and R, is 0.27. If you place a fraction w of your money in the stock fund and the rest, 1
the bond fund, then the return on your investment is R = wR₂ + (1-w)Rp.
-
Suppose that w = 0.53. Compute the mean and standard deviation of R.
The mean is. (Round your response to three decimal places.)
The standard deviation is. (Round your response to three decimal places.)
w, in
Transcribed Image Text:Suppose you have some money to invest-for simplicity, $1-and you are planning to put a fraction w into a stock market mutual fund and the rest, 1 w, into a bond mutual fund. Suppose that $1 invested in a stock fund yields R after 1 year and that $1 invested in a bond fund yields Rp. suppose that R, is random with mean 0.08 (8%) and standard deviation 0.07, and suppose that R, is random with mean 0.05 (5%) and standard deviation 0.04. The correlation between R. and R, is 0.27. If you place a fraction w of your money in the stock fund and the rest, 1 the bond fund, then the return on your investment is R = wR₂ + (1-w)Rp. - Suppose that w = 0.53. Compute the mean and standard deviation of R. The mean is. (Round your response to three decimal places.) The standard deviation is. (Round your response to three decimal places.) w, in
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