Jeffrey is currently holding a $2 mil portfolio as follows :

	Value	% of Total	Expected Annual Return	Annual Standard Deviation
Short-term bonds	0.2 mil	10	4.6%	1.6%
Large-Cap Equities	0.6 mil	30	12.4%	19.5%
Small-Cap Equities	1.2 mil	60	16.0%	29.9%
Total	2.0 mil	100	13.8%	23.1%

Moreover, he is so lucky that he will have another $2.0 mil so that he is going to invest the additional amount in an index fund. Suppose you are Jeffreys financial planner and you are evaluating 4 index funds for him to form a portfolio which should meet 2 criteria relative to his current portfolio : i) Maintain or enhance the expected return, and, ii) Maintain or reduce the volatility.

Here are the details of these 4 index funds :

Index Fund	Expected Annual Return	Expected Annual Standard Deviation	Correlation of returns to current portfolio
A	15%	25%	0.80
B	11%	22%	0.60
C	16%	25%	0.90
D	14%	22%	0.65

Discuss your suggestion to Jeffrey. You should justify your choice and describe how the chosen fund can best meet the two criteria. (5 marks for calculation; 5 marks for discussion and comment)

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Jeffrey is currently holding a $2 mil portfolio as follows: Value % of Total Expected Annual Standard Annual Return Deviation 102 4.6% 1.6% 0.2 mile 0.6 mil 30 12.4% 19.5% Short-term bonds Large-Cap Equities Small-Cap Equities Total 1.2 mil 602 16.0% 29.9% 2.0 mil 100 13.8% 23.1% Moreover, he is so lucky that he will have another $2.0 mil so that he is going to invest the additional amount in an index fund. Suppose you are Jeffrey's financial planner and you are evaluating 4 index funds for him to form a portfolio which should meet 2 criteria relative to his current portfolio :) Maintain or enhance the expected return, and, ii) Maintain or reduce the volatility. Here are the details of these 4 index funds : Index Fund Expected Annual Return Expected Annual Standard Deviation Correlation of returns to current portfolio Be ca D 15% 11% 16% 14% 25% 22% 25% 22% 0.80 0.60 0.90 0.652 Discuss your suggestion to Jeffrey. You should justify your choice and describe how the chosen fund can best meet the two criteria. (5 marks for calculation; 5 marks for discussion and comment) Jeffrey is currently holding a $2 mil portfolio as follows: Value % of Total Expected Annual Standard Annual Return Deviation 102 4.6% 1.6% 0.2 mile 0.6 mil 30 12.4% 19.5% Short-term bonds Large-Cap Equities Small-Cap Equities Total 1.2 mil 602 16.0% 29.9% 2.0 mil 100 13.8% 23.1% Moreover, he is so lucky that he will have another $2.0 mil so that he is going to invest the additional amount in an index fund. Suppose you are Jeffrey's financial planner and you are evaluating 4 index funds for him to form a portfolio which should meet 2 criteria relative to his current portfolio :) Maintain or enhance the expected return, and, ii) Maintain or reduce the volatility. Here are the details of these 4 index funds : Index Fund Expected Annual Return Expected Annual Standard Deviation Correlation of returns to current portfolio Be ca D 15% 11% 16% 14% 25% 22% 25% 22% 0.80 0.60 0.90 0.652 Discuss your suggestion to Jeffrey. You should justify your choice and describe how the chosen fund can best meet the two criteria. (5 marks for calculation; 5 marks for discussion and comment)