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10. Brenda Weiss is a portfolio manager managing a portfolio worth $2,000,000. She typically constructs her portfolio using an S&P fund and a fund that
10. Brenda Weiss is a portfolio manager managing a portfolio worth $2,000,000. She typically constructs her portfolio using an S&P fund and a fund that invests in small stocks, as well as treasury bills. Her portfolio horizon is one year. Brenda assesses that the expected return on theS\&P fund is 13% with standard deviation 20%, and that the expected return on the small stock fund is 18% with a standard deviation of 25%. She also assesses the correlation coefficient between the S&P fund and the small stock fund to be 0.7. Assume that the yield (rate of return) on treasury bills is 8%. Brenda has decided to sell short $500,000 worth of treasury bills (that is, toborrow $500,000 at 8% ) and invest this money together with the $2,000,000 she has, in the two risky funds. Of this, $1,000,000 will be invested in the S&P fund and the rest in the small stock fund. What are the expected return and the standard deviation of the return on Brenda's portfolio? 10. Brenda Weiss is a portfolio manager managing a portfolio worth $2,000,000. She typically constructs her portfolio using an S&P fund and a fund that invests in small stocks, as well as treasury bills. Her portfolio horizon is one year. Brenda assesses that the expected return on theS\&P fund is 13% with standard deviation 20%, and that the expected return on the small stock fund is 18% with a standard deviation of 25%. She also assesses the correlation coefficient between the S&P fund and the small stock fund to be 0.7. Assume that the yield (rate of return) on treasury bills is 8%. Brenda has decided to sell short $500,000 worth of treasury bills (that is, toborrow $500,000 at 8% ) and invest this money together with the $2,000,000 she has, in the two risky funds. Of this, $1,000,000 will be invested in the S&P fund and the rest in the small stock fund. What are the expected return and the standard deviation of the return on Brenda's portfolio
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