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 Rs after 1 year and that $1 invested in a bond fund yields R., 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 0.25 If you place a fraction w of your money in the stock fund and the rest, 1 - w, in the bond fund, then the return on your investment is R=wRs +(1-w)RD Suppose that w=0.5. 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)
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 Rs after 1 year and that $1 invested in a bond fund yields R., 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 0.25 If you place a fraction w of your money in the stock fund and the rest, 1 - w, in the bond fund, then the return on your investment is R=wRs +(1-w)RD Suppose that w=0.5. 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)
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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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 Re
after 1 year and that $1 invested in a bond fund yields R₂, 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 0.25 If you place a fraction w of your money in the stock fund and the rest, 1 - w, in
the bond fund, then the return on your investment is R = wRs + (1-w)Rp
Suppose that w=0.5. Compute the mean and standard deviation of R
(Round your response to three decimal places.)
The mean is
The standard deviation is (Round your response to three decimal places:)
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