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 on the All world Fund is 7.80% with a standard deviation of 18.90%. The expected percent return of an investment in a treasury bond fund is 5.50% and the standard deviation is 4.60%. The covariance of an investment in the All World Fund with an investment if a treasury bond fund is -12.4. Which of the funds would be considered riskier? Why? .If KA recommends that the client invest 75% in the All World Fund and 25% in the treasury bond fund, what is the expected return and standard deviation for such a portfolio? What would be the expected return and standard deviation, in dollars, for a client investing $10,000 in such a portfolio? 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? What would be the expected return and standard deviation, in dollars, for a client investing $10,000 in 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
Question

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 on the All world Fund is 7.80% with a standard deviation of 18.90%. The expected percent return of an investment in a treasury bond fund is 5.50% and the standard deviation is 4.60%. The covariance of an investment in the All World Fund with an investment if a treasury bond fund is -12.4.

  1. Which of the funds would be considered riskier? Why?
  2. .If KA recommends that the client invest 75% in the All World Fund and 25% in the treasury bond fund, what is the expected return and standard deviation for such a portfolio? What would be the expected return and standard deviation, in dollars, for a client investing $10,000 in such a portfolio?
  3. 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? What would be the expected return and standard deviation, in dollars, for a client investing $10,000 in such a portfolio?
Expert Solution
trending now

Trending now

This is a popular solution!

steps

Step by step

Solved in 2 steps with 4 images

Blurred answer
Knowledge Booster
Continuous Probability 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