Chegg Allows up to 4 quesitons being answered You are discussing your retirement plan with Jennifer when she mentions that Ashley, a representative from Toronto Financial Services, is visiting your officetoday. You decide that you should meet with aSHLEY, so Jennifer sets up an appointment foryou later in the day. When you sit down with Maureen, she discusses the various investmentoptions available in the company's retirement plan. You mention to Ashley that youresearched your new employer before you accepted your new job. Analysis of the companyhas led to your belief that the company is growing and will achieve a grater market sharein the future. You also feel you should support your employer. Given these considerations, along with the fact that you are a conservative investor, you are leaning toward investing100% of your retirement amount in the company you now work for.Assume the risk-free rate is the historical average T-Bill rate of 3.4%. The correlation between the TO Large-Cap Stock Fund and the TO Bond Fund is 0.1. Note that the spreadsheet graphing and Solver in Excel may assist you in answering the questions. TO TSX Composite Index Fund TO Small-Cap Stock Fund TO Large-Cap Stock Fund TO Bond Fund 10-year average return Standard deviation 9.18% 20.43% 14.12% 25.13% 8.58% 23.82% 5.45% 9.85% 1. How should Ashley respond to the suggestion that you invest 100 percent of your retirement savings in the company you now work for? What about when you say thatyou are a conservative investor and that a 100 percent investment in the bond fund may be the best alternative. Is it? 2. Using the average returns and standard deviations for the TO Large-Cap Stock Fund and the TO Bond Fund, graph the opportunity set offeasible portfolios you can form from these two risky assets. Examining the opportunity set, notice there is a portfolio that has the lowest standard deviation. What are the portfolio weights, expected return, and standard deviation of this minimum variance portfolio? Why is the minimum variance portfolio important? 3. After examining the opportunity set, you notice that you can invest in a portfolioconsisting of the bond fund and the large-cap stock fund that will have exactly the samestandard deviation as the bond fund. This portfolio will also have a greater expectedreturn. What are the portfolio weights and the expected return of this portfolio? 4. What are the portfolio weights, expected return, and standard deviation of the tan-gency portfolio? Using this information graph the capital allocation line alongside theopportunity set of risky assets. How does the Sharpe ratio of the tangency portfoliocompare to the Sharpe ratios of the bond fund and the large-cap stock fund? Chegg Allows up to 4 quesitons being answered You are discussing your retirement plan with Jennifer when she mentions that Ashley, a representative from Toronto Financial Services, is visiting your officetoday. You decide that you should meet with aSHLEY, so Jennifer sets up an appointment foryou later in the day. When you sit down with Maureen, she discusses the various investmentoptions available in the company's retirement plan. You mention to Ashley that youresearched your new employer before you accepted your new job. Analysis of the companyhas led to your belief that the company is growing and will achieve a grater market sharein the future. You also feel you should support your employer. Given these considerations, along with the fact that you are a conservative investor, you are leaning toward investing100% of your retirement amount in the company you now work for.Assume the risk-free rate is the historical average T-Bill rate of 3.4%. The correlation between the TO Large-Cap Stock Fund and the TO Bond Fund is 0.1. Note that the spreadsheet graphing and Solver in Excel may assist you in answering the questions. TO TSX Composite Index Fund TO Small-Cap Stock Fund TO Large-Cap Stock Fund TO Bond Fund 10-year average return Standard deviation 9.18% 20.43% 14.12% 25.13% 8.58% 23.82% 5.45% 9.85% 1. How should Ashley respond to the suggestion that you invest 100 percent of your retirement savings in the company you now work for? What about when you say thatyou are a conservative investor and that a 100 percent investment in the bond fund may be the best alternative. Is it? 2. Using the average returns and standard deviations for the TO Large-Cap Stock Fund and the TO Bond Fund, graph the opportunity set offeasible portfolios you can form from these two risky assets. Examining the opportunity set, notice there is a portfolio that has the lowest standard deviation. What are the portfolio weights, expected return, and standard deviation of this minimum variance portfolio? Why is the minimum variance portfolio important? 3. After examining the opportunity set, you notice that you can invest in a portfolioconsisting of the bond fund and the large-cap stock fund that will have exactly the samestandard deviation as the bond fund. This portfolio will also have a greater expectedreturn. What are the portfolio weights and the expected return of this portfolio? 4. What are the portfolio weights, expected return, and standard deviation of the tan-gency portfolio? Using this information graph the capital allocation line alongside theopportunity set of risky assets. How does the Sharpe ratio of the tangency portfoliocompare to the Sharpe ratios of the bond fund and the large-cap stock fund
