Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

considering setting up an investment portfolio. She has $10,000 cash on hand and would like to spend $3758 on Share A and the remaining on

considering setting up an investment portfolio. She has $10,000 cash on hand and would like to spend $3758 on Share A and the remaining on Bond B. The market price for the share today is $29. She also has the following expectation on the share price and bond return in 6 months time. Assume no coupon or dividend is received during the period of holding.

image text in transcribed

Sophia is considering setting up an investment portfolio. She has $10,000 cash on hand and would like to spend $3758 on Share A and the remaining on Bond B. The market price for the share today is $29. She also has the following expectation on the share price and bond return in 6 months' time. Assume no coupon or dividend is received during the period of holding. Probability Share A Price Bond B Return 60% $35 -2% 40% $25 5% 1. Sophia wants to use the below formula to calculate the expected return of Share A. E(R)Share = 60% + R1 + 40% * R2 Calculate the following variables in the formula above. Round your answer to the nearest 0.01% (2dp). Do not include the % symbol. Do not use comma separators. For example, if your answer in decimal is 0.123456, 12.35 would be the correct format. R1 = % (1 mark) R2= % (1 mark) 2. Calculate the expected return of Bond B. Round your answer to the nearest 0.01% (20p). Do not include the % symbol. Do not use comma separators. For example, if your answer in decimal is 0.123456, 12.35 would be the correct format. E(R)Bond B= % (1 mark) 3. Sophia wants to use the below formula to calculate the expected return of her portfolio. E(R) Portfolio = x1 *E(R)Share A + x2 *E(R)Bond B Calculate the following variables in the formula above. Round your answer to the nearest 0.01% (2dp). Do not include the % symbol. Do not use comma separators. For example, if your answer in decimal is 0.123456, 12.35 would be the correct format. X1= % (1 mark) X2= % (1 mark)

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 Terms Dictionary Investment Terminology Explained

Authors: Thomas Herold, Wesley Crowder

1st Edition

1521725764, 978-1521725764

More Books

Students also viewed these Finance questions