Investments
11th Edition
ISBN: 9781259277177
Author: Zvi Bodie Professor, Alex Kane, Alan J. Marcus Professor
Publisher: McGraw-Hill Education
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Question
Chapter 7, Problem 10PS
Summary Introduction
To calculate: The Investment proportion of the portfolio is to be determined when the required expected return is 14%. The standard deviation in this question is to be compared with the optimized portfolio of the previous problem.
Introduction: The portfolio risk is defined as the combination of assets which carries its own risk with each investment.
The standard deviation is used to determine that in which manner the values from a data set vary from its mean value. This is calculated by the square root of the variance.
The expected return is defined as the return which is obtained on the risky asset that is expected in future.
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Students have asked these similar questions
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:
Stock
fund (S)
Exp.
Return
Bond
fund (B)
0.43
15%
O 1.00
0.70
11%
The correlation between the fund returns is 0.2.
Solve numerically for the Sharpe Ratio of the optimal risky portfolio.
0.66
Std.
Deviation
0.85
26%
12%
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
Solve it correctly please.
Chapter 7 Solutions
Investments
Ch. 7 - Prob. 1PSCh. 7 - Prob. 2PSCh. 7 - Prob. 3PSCh. 7 - Prob. 4PSCh. 7 - Prob. 5PSCh. 7 - Prob. 6PSCh. 7 - Prob. 7PSCh. 7 - Prob. 8PSCh. 7 - Prob. 9PSCh. 7 - Prob. 10PS
Ch. 7 - Prob. 11PSCh. 7 - Prob. 12PSCh. 7 - Prob. 13PSCh. 7 - Prob. 14PSCh. 7 - Prob. 15PSCh. 7 - Prob. 16PSCh. 7 - Prob. 17PSCh. 7 - Prob. 18PSCh. 7 - Prob. 19PSCh. 7 - Prob. 20PSCh. 7 - Prob. 21PSCh. 7 - Prob. 22PSCh. 7 - Prob. 23PSCh. 7 - Prob. 1CPCh. 7 - Prob. 2CPCh. 7 - Prob. 3CPCh. 7 - Prob. 4CPCh. 7 - Prob. 5CPCh. 7 - Prob. 6CPCh. 7 - Prob. 7CPCh. 7 - Prob. 8CPCh. 7 - Prob. 9CPCh. 7 - Prob. 10CPCh. 7 - Prob. 11CPCh. 7 - Prob. 12CPCh. 7 - Prob. 13CP
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