You have decided to invest in three mutual funds: one in equities, one in long corporate and government bonds, and a money market fund invested in T-bills yielding 5%. Your estimate of the relevant parameters for the equities and bond funds are as follows: Expected Return Standard Deviation Equities .15 .30 Bonds .06 .09 The correlation between the fund returns is 0.12. Determine the best feasible CAL and calculate its reward-to-volatility ratio.
You have decided to invest in three mutual funds: one in equities, one in long corporate and government bonds, and a money market fund invested in T-bills yielding 5%. Your estimate of the relevant parameters for the equities and bond funds are as follows: Expected Return Standard Deviation Equities .15 .30 Bonds .06 .09 The correlation between the fund returns is 0.12. Determine the best feasible CAL and calculate its reward-to-volatility ratio.
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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INV 1 6c
You have decided to invest in three mutual funds: one in equities, one in long corporate and government bonds, and a
|
|
Expected Return |
Standard Deviation |
|
Equities |
.15 |
.30 |
|
Bonds |
.06 |
.09 |
The correlation between the fund returns is 0.12.
- Determine the best feasible CAL and calculate its reward-to-volatility ratio.
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