You are considering two mutual funds. The first is a stock fund and the second is a long-term government and corporate bond fund. The stock fund has an expected return of 20% and a variance of 0.36. The bond fund has an expected return of 8% and a variance of 0.16. The correlation coefficient between the stock and bond funds is 0.3. If you create an equally-weighted portfolio by using these two funds, what is your portfolio's standard deviation? OA.0.166 OB.0.407 OC.0.335 OD.0.283

You are considering two mutual funds. The first is a stock fund and the second is a long-term government and corporate bond fund. The stock fund has an expected return of 20% and a variance of 0.36. The bond fund has an expected return of 8% and a variance of 0.16. The correlation coefficient between the stock and bond funds is 0.3. If you create an equally-weighted portfolio by using these two funds, what is your portfolio's standard deviation? OA.0.166 OB.0.407 OC.0.335 OD.0.283

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

See similar textbooks

Related questions

Q: Prev

A: The Loan provided to friends is clearly a “Non-Business” loan and so it is to be treated as…

Q: Bnmm

A: Accounting system refers to the set of the processes of accounting which is integrated with the…

Q: What is crj

A: Crj means cash receipt journal .

Q: THE SMITH COMPANY Using the business transactions below, complete T-accounts for the Smith Company.…

A: T Accounts 1. Cash Account Particular Debit Particular Credit To capital A/c…

Q: What is the quotient? (13)/(15)-:(1)/(3)=x

A: A quotient in mathematics is the amount created when two numbers are divided. In mathematics, the…

Q: The acco

A: Accounting equation has been considered as the origination of double entry accounting system. This…

Q: need part d, e, f answered

A: Income tax expense for the year is calculated by adjusting deferred tax liability and deferred tax…

Q: What is FIFO?

A: FIFO is a type of inventory management system where stock purchased earlier will be sold first and…

Q: Question 8

A: When net credit sales is divided with average accounts receivable it results in receivable turnover…

Q: the difference between a W-4 form and W-2 form.

A: Form W-4: Employee’s withholding allowance certificate. This form is filled by employees for their…

Q: Explanation 1031 like-kind exchange

Q: hat is APY

A: In interest there is compounding and other is simple interest. In the compouding there is interest…

Q: What is ESOP?

A: It is abbreviated as Employee Stock Ownership Plan is defined as a plan that gives the workers a…

Q: Define Volcker rule

A: Volcker Rule is a regulation that implies restrictions on the banks to involve in the stock market…

Q: What is MM Proposition I?

A: Modigliani and Miller’s approach is an element of economic theory and it forms the basis for modern…

Q: What are asserts

A: What are assets?

Q: What the agi

A: AGI means Adjusted Gross Income. It is the total income on which income tax payable would be…

Q: Explain- Agency cost.

Q: What is cpj

A: Financial accounting involves the work of recording and posting of financial transactions into the…

Q: about Question D and E?

A: Answering the part D and E as specifically asked

Q: Alternativ ousands) $500,000 gs (thousands) $131,900 y assumption, what is the PW 5.

A: Hi There, Thanks for posting the questions. As per our Q&A guidelines, must be answered only one…

Q: Journal Entries: Partnership Formation Art, Bart and Cath formed a partnership by contributing 40%,…

A: Hi student Since there are multiple questions, we will answer only first question. Partnership is…

Q: what about quesitons E and F?

A: Work in progress (WIP) also called work in process, is inventory that has begun the manufacturing…

Question

v. 2

You are considering two mutual funds. The first is a stock fund and the second is a long-term government and corporate bond
fund. The stock fund has an expected return of 20% and a variance of 0.36. The bond fund has an expected return of 8% and a
variance of 0.16. The correlation coefficient between the stock and bond funds is 0.3. If you create an equally-weighted portfolio
by using these two funds, what is your portfolio's standard deviation?
OA.0.166
OB.0.407
OC.0.335
OD.0.283

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

This is a popular solution!

SEE SOLUTION Check out a sample Q&A here

Step 1: Formula.

VIEW

Step 2: Computation of standard deviation and weight of each funds.

VIEW

Step 3: Computation of standard deviation of portfolio.

VIEW

Solution

VIEW

Trending now

This is a popular solution!

Step by step

Solved in 4 steps with 13 images

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.

Similar questions

You want to allocate your money between the risk free asset (0.015), a fixed income fund ( E(B)=0.079, Volatility(B)=0.11), and a diversified stock fund ( E(S)=0.116, Volatility(S)=0.18). The correlation between the two risky funds is 0.57. When creating the optimal risky portfolio, how much weight in decimals should you invest in the diversified stock fund?
A pension fund manager is considering three mutual funds. The first is a stock fund, the second is a long-term bond fund, and the third is a money market fund that provides a safe return of 4%. The characteristics of the risky funds are as follows: Expected Return Standard Deviation Stock fund (S) Bond fund (B) The correlation between the fund returns is 0.09. You require that your portfolio yield an expected return of 14%, and that it be efficient, that is, on the steepest feasible CAL. 17% 14 35% 18. Required: a. What is the standard deviation of your portfolio? b. What is the proportion invested in the money market fund and each of the two risky funds?
A pension fund manager is considering three mutual funds. The first is a stock fund, the second is a long-term bond fund, and the third is a money market fund that provides a safe return of 7%. The characteristics of the risky funds are as follows: Stock fund (S) Bond fund (B) The correlation between the fund returns is 0.10. You require that your portfolio yield an expected return of 16%, and that it be efficient, that is, on the steepest feasible CAL. a. What is the standard deviation of your portfolio? (Round your answer to 2 decimal places.) Standard deviation Expected Return Standard Deviation 198 31% 23 14 Money market fund Stocks Bonds 19.33 % b. What is the proportion invested in the money market fund and each of the two risky funds? (Round your answers to 2 decimal places.) Proportion Invested
If $x is invested in mutual fund A, the annual return has an expectation of $0.1x and a standard deviation of $0.02x. If $x is invested in mutual fund B, the annual return has an expectation of $0.1x and a standard deviation of $0.03x. Suppose that the returns on the two funds are independent of each other and that I have $1000 to invest. (a) What are the expectation and variance of my annual return if I invest all my money in fund A? (b) What are the expectation and variance of my annual return if I invest all my money in fund B? (c) What are the expectation and variance of my total annual return if I invest half.
A pension fund manager is considering three mutual funds. The first is a stock fund, the second is a long term bond, and the third is a money fund that provides a safe return of 7%. The stock fund has an expected return of 19% and a standard deviation of 31%. The bond fund has an expected return of 14% and a standard deviation of 23%. The correlation between the fund returns is 0.10. You require that your portfolio yield an expected return of 16%, and that it be efficient, that is, on the steepest feasible CAL. What is the proportion invested in the money market fund and each of the two risky funds (rounded to 2 decimal places)? Proportion Invested: Money Market Fund = ?% Stocks = ?% Bonds = ?%
You are a Portfolio Manager who has a Stock Fund, a Bond Fund and a Treasury Bill Fund. The Stock Fund has an expected return of 12.2% and an expected volatility of 18.8%. The Bond Fund has an expected return of 4.3% and an expected volatility of 7.1%. The T-Bill fund will yield a return of 2.7%. The correlation coefficient between the two risky assets is 0.19. If you created a Risky Portfolio from the two risky assets and if your allocation was 40/60 Bonds/Stocks, what would be the expected return of the Risky Portfolio? Group of answer choices 9.04% 7.46% 8.25% 6.34% None of the above
You have estimated the single index model (SIM) fund B and found that its alpha and beta are 0.035 and 1.1 respectively. The standard deviation of Fund B's excess returns is 30% and the market portfolio excess returns have a standard deviation of 20%. What's the information ratio of Fund B?
A pension fund manager is considering three mutual funds. The first is a stock fund, the second is a long -term bond fund, and the third is a money market fund that provides a safe return of 4%. Thecharacteristics of the risky funds are as follows: The correlation between the fund returns is 0.13. Yourequire that your portfolio yield an expected return of 12%, and that it be efficient, that is, on the steepestfeasible CAL. a. What is the standard deviation of your portfolio? (Round your answer to 2 decimal places.)Standard deviation b. What is the proportion invested in the money market fund and each of the two riskyfunds? (Round your answers to 2 decimal places.)
A pension fund manager is considering three mutual funds for investment. The first one is a stock fund, the second is a bond fund and the third is a money market fund. The money market fund yields a risk-free return of 5%. The inputs for the risky funds are given in the following table. Fund Stock fund Bond fund Expected return Variance Expected Return. 13% 6% The correlation coefficient between the stock and the bond funds is 0.4. a. What is the expected return and the variance for a portfolio that invests 54% in the stock fund and 46% in the bond fund? (Round intermediate calculations to at least 4 decimal places and final answers to 2 decimal places.) Expected return Variance % %2 Standard Deviation 33% 16% b. What is the expected return and the variance for a portfolio that invests 54% in the stock fund and 46% in the money market fund? [Hint: Note that the correlation coefficient between the portfolio and the money market fund is zero.] (Round intermediate calculations to at least…
Consider a stock fund and a bond fund with the following characteristics and a correlation of 0.2. A T-Bill money market fund yields 8%. You are allowed to use all three funds to form an optimal portfolio. E ( R ) Sigma Stock Fund (S) 20% 30% Bond Fund (B) 12% 10% What would be the portfolio P that consists of the stock fund and the bond fund and that has the highest Sharpe ratio What are the expected return and risk of the optimal risky portfolio P What is the Sharpe ratio of the best feasible capital allocation line (CAL)? Consider an investor with a risk aversion parameter A=10. What is her optimal allocation to the risky portfolio, P
A pension fund manager is considering three mutual funds. The first is a stock fund, the second is a long-term government and corporate bond fund, and the third is a T-bill money market fund that yields a rate of 6%. The probability distribution of the risky funds is as follows: E(r) st. dev. stock fund .24 .33 bond fund .14 .22 The correlation between the fund returns is 0.14. You require that your portfolio yield an expected return of 16%, and that it be efficient, on the best feasible CAL. a. What is the standard deviation of your portfolio? (Round your answer to 2 decimal places.) b. What is the proportion invested in the T-bill fund and each of the two risky funds? (Round your answers to 2 decimal places.)
You plan to invest in either a mutual fund X or mutual fund Y. The following information about the annual return (%) of each of these investments under different demand levels is available, along with the probability that each of these states of nature will OCcur: Demand Probability Fund X Fund Y High 0.4 30% 25% Medium 0.4 22% 34% low 0.2 17% 25% a) Compute expected return, standard deviation for each investment and covariance of the mutual fund X and mutual fund Y. b) Would you invest in the mutual fund X or Y? Explain. c) If you chose to invest in mutual fund X and the state of nature turns up to be the low demand, what do you think about the possibility of the opportunity loss of 8% in comparison to investing in mutual fund Y?

SEE MORE QUESTIONS

Recommended textbooks for you

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

SEE MORE TEXTBOOKS