Question
Hello I am struggling on this project in my Finance class. Assume the market is formed of only two securities (a bond fund and a
Hello I am struggling on this project in my Finance class.
Assume the market is formed of only two securities (a bond fund and a stock fund). Use the following numbers in Excel:
...................E(r) o(r) Corr(B,S)
Bonds (S) .04 .15 .10
Stocks (S) .11 .30
Do the following steps:
1. Consider alternative two-asset portfolios formed by varying the weights for the two funds provided above. That is, start with a portfolio that has 0% in the stock fund and 100% in the bond fund and calculate ( ) and oP . Repeat the exercise by increment of 2% for the weight of the stock fund (i.e. recalculate E(rP) and P for a portfolio that has 2% in stock and 98% in the bond, then 4%, in the stock and 96% in the bond, and then 6% in the stock and 94% in the bond, etc). Note that as long as you know the weight of the stock fund in the portfolio of two assets, the weight of the bond fund is also known (the two weights should add to 1). When you are done with this step you should have 51 pairs of data points for (E(rP), P ), which should be organized in a table similar to Spreadsheet 6.6 in your textbook.
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