27. Portfolio risk and return (S7.4) Percival Hygiene has $10 million invested in long-term corporate bonds. This
Question:
27. Portfolio risk and return (S7.4) Percival Hygiene has $10 million invested in long-term corporate bonds. This bond portfolio’s expected annual rate of return is 9%, and the annual standard deviation is 10%. Amanda Reckonwith, Percival’s financial adviser, recommends that Percival consider investing in an index fund that closely tracks the Standard & Poor’s 500 Index. The index has an expected return of 14%, and its standard deviation is 16%.
a. Suppose Percival puts all his money in a combination of the index fund and Treasury bills.
Can he thereby improve his expected rate of return without changing the risk of his portfolio?
The Treasury bill yield is 6%.
Step by Step Answer:
Principles Of Corporate Finance
ISBN: 9781264080946
14th Edition
Authors: Richard Brealey, Stewart Myers, Franklin Allen, Alex Edmans