Question
Problems in which weight in assets should be answered in decimal form rounded 4 decimals. Expected return or standard deviation problems in percentages and rounded
Problems in which weight in assets should be answered in decimal form rounded 4 decimals.
Expected return or standard deviation problems in percentages and rounded to 2 decimals.
As an individual investor, you have three funds to invest into. The first is an equity fund, the second is a corporate bond fund, and the third is a T-bill money-market fund (your risk-free asset). Assume your personal risk aversion is 0.06 (A=0.06). The correlation between the equity fund and the bond fund returns is 0.1.
Fund | Expected rate of return | Risk(Standard deviation) |
Equity Fund | 16% | 38% |
Corporate bond fund | 7% | 25% |
T-Bill money market fund | 3% |
1) Find the weight of the T-bill money-market fund in the complete portfolio.
2) Find the weight of the corporate bond fund in the optimal portfolio formed by equity fund and corporate bond fund.
3) Find the risk (standard deviation) of the minimum variance portfolio in %.
4) Find the expected rate of return of the minimum variance portfolio in %.
5) Find the weight of the equity fund in the minimum variance portfolio formed by equity fund and corporate bond fund.
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