Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

2.Your mentor has given you a set of data on another pair of stock fund and bond fund: Expected Returns (%) Standard Deviation (%) Stock

2.Your mentor has given you a set of data on another pair of stock fund and bond fund:

Expected Returns (%) Standard Deviation (%)
Stock Fund 18 35
Bond Fund 7 19

The correlation coefficient between the fund returns is 0.05.

a. Given the T-bill rate is 3%. Calculate the weight in stock fund, expected return and standard deviation of the optimal risky portfolio. (6 marks)

b. Calculate the Sharpe ratio for the optimal risky portfolio. (2 marks)

c. Suppose an investor decides to invest in the optimal risky portfolio a proportion (y) of his total investment budget so that his overall portfolio will have an expected rate of return of 11%. (i) Calculate the proportion y? (2 marks) (ii) Calculate the standard deviation of the investors portfolio? (2 marks)

d. Draw the CAL on an expected return/standard deviation diagram which shows the slope of the CAL and the position of the investor on the CAL. (2 marks)

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Financial Accounting

Authors: Jerry J. Weygandt, Paul D. Kimmel, Donald E. Kieso

9th Edition

1118334329, 978-1118334324

More Books

Students also viewed these Accounting questions

Question

Let a Answered: 1 week ago

Answered: 1 week ago