Suppose that for some reason you are required to invest 50% of your portfolio in bonds and

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Suppose that for some reason you are required to invest 50% of your portfolio in bonds and 50% in stocks.

a. If the standard deviation of your portfolio is 15%, what must be the correlation coefficient between stock and bond returns?

b. What is the expected rate of return on your portfolio?

c. Now suppose that the correlation between stock and bond returns is 0.22 but that you are free to choose whatever portfolio proportions you desire.

d. Are you likely to be better or worse off than you were in part (a)?

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Essentials Of Investments

ISBN: 9780073368719

7th Edition

Authors: Zvi Bodie, Alex Kane, Alan J. Marcus

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