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You currently own shares in Berkshire Mutual Fund (BMF). Your broker calls and recommends vuying shares in a small-capitalization fund managed by Wonderland Investment Group (WIG). Your broker says that this fund will provide significant diversification benefits for your existing holdings. She gives you the following statistics based on the performance of the two funds over the last year. Portfolio Expected Return Standard Deviation Berkshire Mutual Fund 20% 14% Wonderland Investment Group a) Assume that you can earn an average annual yield of 8% on a risk-free security. Which of 12% 11% these funds would be the optimal fund to combine with the risk-free security? Why? b) Using the tund you selected in part (a), how much portfolio weights in the fund and the risk- free security would be required to earn a target return of 22%? Describe this position.

You currently own shares in Berkshire Mutual Fund (BMF). Your broker calls and recommends vuying shares in a small-capitalization fund managed by Wonderland Investment Group (WIG). Your broker says that this fund will provide significant diversification benefits for your existing holdings. She gives you the following statistics based on the performance of the two funds over the last year. Portfolio Expected Return Standard Deviation Berkshire Mutual Fund 20% 14% Wonderland Investment Group a) Assume that you can earn an average annual yield of 8% on a risk-free security. Which of 12% 11% these funds would be the optimal fund to combine with the risk-free security? Why? b) Using the tund you selected in part (a), how much portfolio weights in the fund and the risk- free security would be required to earn a target return of 22%? Describe this position.

PFIN (with PFIN Online, 1 term (6 months) Printed Access Card) (New, Engaging Titles from 4LTR Press)
PFIN (with PFIN Online, 1 term (6 months) Printed Access Card) (New, Engaging Titles from 4LTR Press)
6th Edition
ISBN:9781337117005
Author:Randall Billingsley, Lawrence J. Gitman, Michael D. Joehnk
Publisher:Randall Billingsley, Lawrence J. Gitman, Michael D. Joehnk
Chapter13: Investing In Mutual Funds, Etfs, And Real Estate
Section: Chapter Questions
Problem 8FPE
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You currently own shares in Berkshire Mutual Fund (BMF). Your broker calls and recommends buying shares in a small-capitalization fund managed by Wonderland Investment Group (WIG). Your
broker says that this fund will provide significant diversification benefits for your existing holdings. She gives you the following statistics based on the performance of the two funds over the last year.

 

 

 

Please don,t copy wrong answer.Write correct answer.Answer must be correct. and do all calculation. its carry huge .Answer follow image. Must show all calculation.

You currently own shares in Berkshire Mutual Fund (BMF). Your broker calls and recommends vuying shares in a small-capitalization fund managed by Wonderland Investment Group (WIG). Your broker says that this fund will provide significant diversification benefits for your existing holdings. She gives you the following statistics based on the performance of the two funds over the last year. Portfolio Expected Return Standard Deviation Berkshire Mutual Fund 20% 14% Wonderland Investment Group a) Assume that you can earn an average annual yield of 8% on a risk-free security. Which of 12% 11% these funds would be the optimal fund to combine with the risk-free security? Why? b) Using the tund you selected in part (a), how much portfolio weights in the fund and the risk- free security would be required to earn a target return of 22%? Describe this position.
Transcribed Image Text:You currently own shares in Berkshire Mutual Fund (BMF). Your broker calls and recommends vuying shares in a small-capitalization fund managed by Wonderland Investment Group (WIG). Your broker says that this fund will provide significant diversification benefits for your existing holdings. She gives you the following statistics based on the performance of the two funds over the last year. Portfolio Expected Return Standard Deviation Berkshire Mutual Fund 20% 14% Wonderland Investment Group a) Assume that you can earn an average annual yield of 8% on a risk-free security. Which of 12% 11% these funds would be the optimal fund to combine with the risk-free security? Why? b) Using the tund you selected in part (a), how much portfolio weights in the fund and the risk- free security would be required to earn a target return of 22%? Describe this position.
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