Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Exercise 5-33 Static You have $400,000 Invested in a well-diversified portfolio. You inherit a house that is presently worth $200,000. Consider the summary measures

image text in transcribed

Exercise 5-33 Static You have $400,000 Invested in a well-diversified portfolio. You inherit a house that is presently worth $200,000. Consider the summary measures in the following table: Investment old portfolio House Expected Return 6% 8% Standard Deviation 16% 20% The correlation coefficient between your portfolio and the house is 0.38. a. What is the expected return and the standard deviation for your portfolio comprising your old portfolio and the house? (Do not round Intermediate calculations. Round your final answers to 2 decimal places.) Answer is complete and correct. Expected return Standard deviation -6.66 14.57 % % b. Suppose you decide to sell the house and use the proceeds of $200,000 to buy risk-free T-bills that promise a 3% rate of return. Calculate the expected return and the standard deviation for the resulting portfolio. [Hint: Note that the correlation coefficient between any asset and the risk-free T-bills is zero.] (Do not round intermediate calculations. Round your final answers to 2 decimal places.) Answer is complete but not entirely correct. Expected return 5.01 Standard deviation 16.00 % %

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

Cambridge IGCSE And O Level Additional Mathematics

Authors: Val Hanrahan, Jeanette Powell

1st Edition

1510421645, 978-1510421646

More Books

Students also viewed these Mathematics questions

Question

How does your life situation affect your financial goals?

Answered: 1 week ago