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Assume you manage a US core equity portfolio that is sector-neutral to the S&P 500 (its industry sector weights approximately match the S&P 500's). Taking
Assume you manage a US core equity portfolio that is sector-neutral to the S&P 500 (its industry sector weights approximately match the S&P 500's). Taking a weighted average of the projected mean returns on the holdings, you forecast a portfolio return of 12 percent. You estimate a standard deviation of annual return of 22 percent, close to the long-run figure for the S&P 500. For the year-ahead return on the portfolio, you are asked to do the following a) Calculate and interpret a one standard deviation confidence interval for portfolio return b) Calculate and interpret a 90 percent confidence interval, with a normality assumption for returns. c) Calculate and interpret a 95 percent confidence interval, with a normality assumption for returns. d) What is the probability that portfolio return will exceed 20 percent? e) What is the probability that portfolio return will be between 12 percent and 20 percent? f) You can buy a one-year T-bill that yields 5.5 percent. This yield is effectively a one-year risk-free interest rate. What is the probability that your portfolio's return will be equal to or less than the risk-free rate
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