The Knowles/Armitage (KA) group at Merrill Lynch advises clients on how to create a diversified investment portfolio. One of the investment alternatives they make available to clients is the All World Fund composed of global stocks with good dividend yields. One of their clients is interested in a portfolio consisting of investment in the All World Fund and a treasury bond fund. The expected percent return of an investment in the All World Fund is 10.00% with a standard deviation of 19.00%. The expected percent return of an investment in a treasury bond fund is 4.70% and the standard deviation is 3.90%. The covariance of an investment in the All World Fund with an investment in a treasury bond fund is -12.9. a. Which of the funds would be considered the more risky? - Select your answer - Why? It has a- Select your answer - b. If KA recommends that the client invest 75% in the All World Fund and 25% in the treasury bond fund, what is the expected percent return and standard deviation for such a portfolio? Expected return % (to 3 decimals) Standard deviation % (to 3 decimals) What would be the expected return and standard deviation, in dollars, for a client investing $10,000 in such a portfolio? Expected return $ (to the nearest cent) Standard deviation (to the nearest cent) c. If KA recommends that the client invest 25% in the All World Fund and 75% in the treasury bond fund, what is the expected return and standard deviation for such a portfolio? Expected return % (to 3 decimals) Standard deviation (to 3 decimals)
The Knowles/Armitage (KA) group at Merrill Lynch advises clients on how to create a diversified investment portfolio. One of the investment alternatives they make available to clients is the All World Fund composed of global stocks with good dividend yields. One of their clients is interested in a portfolio consisting of investment in the All World Fund and a treasury bond fund. The expected percent return of an investment in the All World Fund is 10.00% with a standard deviation of 19.00%. The expected percent return of an investment in a treasury bond fund is 4.70% and the standard deviation is 3.90%. The covariance of an investment in the All World Fund with an investment in a treasury bond fund is -12.9. a. Which of the funds would be considered the more risky? - Select your answer - Why? It has a- Select your answer - b. If KA recommends that the client invest 75% in the All World Fund and 25% in the treasury bond fund, what is the expected percent return and standard deviation for such a portfolio? Expected return % (to 3 decimals) Standard deviation % (to 3 decimals) What would be the expected return and standard deviation, in dollars, for a client investing $10,000 in such a portfolio? Expected return $ (to the nearest cent) Standard deviation (to the nearest cent) c. If KA recommends that the client invest 25% in the All World Fund and 75% in the treasury bond fund, what is the expected return and standard deviation for such a portfolio? Expected return % (to 3 decimals) Standard deviation (to 3 decimals)
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
for part d the first blanks of each part is either "part b or part c" then for the second blanks the options are "larger return, lower return, larger standard deviation or lower standard deviation"
![The Knowles/Armitage (KA) group at Merrill Lynch advises clients on how to create a diversified investment portfolio. One of the investment alternatives they make available to clients is the All World Fund composed of global stocks with good dividend yields. One of their clients is interested in a portfolio consisting of investment in the All World Fund and a treasury bond fund. The expected percent return of an investment in the All World Fund is 10.00% with a standard deviation of 19.00%. The expected percent return of an investment in a treasury bond fund is 4.70% and the standard deviation is 3.90%. The covariance of an investment in the All World Fund with an investment in a treasury bond fund is -12.9.
a. Which of the funds would be considered the more risky?
- [Select your answer]
Why?
It has a - [Select your answer].
b. If KA recommends that the client invest 75% in the All World Fund and 25% in the treasury bond fund, what is the expected percent return and standard deviation for such a portfolio?
- Expected return: ________ % (to 3 decimals)
- Standard deviation: ________ % (to 3 decimals)
What would be the expected return and standard deviation, in dollars, for a client investing $10,000 in such a portfolio?
- Expected return: $________ (to the nearest cent)
- Standard deviation: $________ (to the nearest cent)
c. If KA recommends that the client invest 25% in the All World Fund and 75% in the treasury bond fund, what is the expected return and standard deviation for such a portfolio?
- Expected return: ________ % (to 3 decimals)
- Standard deviation: ________ % (to 3 decimals)](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F2d8ced1e-c405-49cc-9707-ee99115bb45e%2F3a31cde0-46ac-4bb0-bc06-4a3e6a62af70%2Flcv6iu_processed.png&w=3840&q=75)
Transcribed Image Text:The Knowles/Armitage (KA) group at Merrill Lynch advises clients on how to create a diversified investment portfolio. One of the investment alternatives they make available to clients is the All World Fund composed of global stocks with good dividend yields. One of their clients is interested in a portfolio consisting of investment in the All World Fund and a treasury bond fund. The expected percent return of an investment in the All World Fund is 10.00% with a standard deviation of 19.00%. The expected percent return of an investment in a treasury bond fund is 4.70% and the standard deviation is 3.90%. The covariance of an investment in the All World Fund with an investment in a treasury bond fund is -12.9.
a. Which of the funds would be considered the more risky?
- [Select your answer]
Why?
It has a - [Select your answer].
b. If KA recommends that the client invest 75% in the All World Fund and 25% in the treasury bond fund, what is the expected percent return and standard deviation for such a portfolio?
- Expected return: ________ % (to 3 decimals)
- Standard deviation: ________ % (to 3 decimals)
What would be the expected return and standard deviation, in dollars, for a client investing $10,000 in such a portfolio?
- Expected return: $________ (to the nearest cent)
- Standard deviation: $________ (to the nearest cent)
c. If KA recommends that the client invest 25% in the All World Fund and 75% in the treasury bond fund, what is the expected return and standard deviation for such a portfolio?
- Expected return: ________ % (to 3 decimals)
- Standard deviation: ________ % (to 3 decimals)
![c. If KA recommends that the client invest 25% in the All World Fund and 75% in the treasury bond fund, what is the expected return and standard deviation for such a portfolio?
Expected return: [___] % (to 3 decimals)
Standard deviation: [___] % (to 3 decimals)
What would be the expected return and standard deviation, in dollars, for a client investing $10,000 in such a portfolio?
Expected return: $[___] (to the nearest cent)
Standard deviation: $[___] (to the nearest cent)
d. Which of the portfolios in parts (b) and (c) would you recommend for an aggressive investor?
I would recommend the portfolio in - Select your answer - for an aggressive investor because it has a - Select your answer - .
Which would you recommend for a conservative investor?
I would recommend the portfolio in - Select your answer - for a conservative investor because it has a - Select your answer - .](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F2d8ced1e-c405-49cc-9707-ee99115bb45e%2F3a31cde0-46ac-4bb0-bc06-4a3e6a62af70%2Fe8h3bwb_processed.png&w=3840&q=75)
Transcribed Image Text:c. If KA recommends that the client invest 25% in the All World Fund and 75% in the treasury bond fund, what is the expected return and standard deviation for such a portfolio?
Expected return: [___] % (to 3 decimals)
Standard deviation: [___] % (to 3 decimals)
What would be the expected return and standard deviation, in dollars, for a client investing $10,000 in such a portfolio?
Expected return: $[___] (to the nearest cent)
Standard deviation: $[___] (to the nearest cent)
d. Which of the portfolios in parts (b) and (c) would you recommend for an aggressive investor?
I would recommend the portfolio in - Select your answer - for an aggressive investor because it has a - Select your answer - .
Which would you recommend for a conservative investor?
I would recommend the portfolio in - Select your answer - for a conservative investor because it has a - Select your answer - .
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