Question
QUESTION 3 . Suppose you also have researched longer back on the historical rate of returns (HPYs) of Equity, Crypto and also the Global All-Asset
QUESTION 3. Suppose you also have researched longer back on the historical rate of returns (HPYs) of Equity, Crypto and also the Global All-Asset market index and estimated the return of each fund and the Global index in different economic scenarios as in the following table, and you have also known the likelihood (probability) of the scenarios via research provided by economic institutions which you found. (2 marks)
Scenarios | Probability | Historical annual rate of return | ||
|
| Equity | Crypto | Global |
Recession | 23% | -4% | -5% | -2% |
Slow growth | 25% | 0% | 4% | 0% |
Good growth | 32% | 5% | 3% | 1% |
High growth | 20% | 8% | 7% | 5% |
Estimate:
a.Expected (forecasted) rate of return (HPY) of Equity, Crypto and the Global index.
b. Variance and standard deviation of the annual expected returns of Equity, Crypto and the Global index. Also estimate the covariance & correlation between Equity & Cryptos returns based on the data in the table
- Given your estimation on each individual funds (Equity & Crypto) expected return, risk and correlation in b., now if your clients want to put money into both of these 2 funds and combine them into an investment portfolio (Name Portfolio O), and you have suggested her to allocate 65% in Equity and 35% in Crypto (asset allocation/investment decision), what will be your Portfolio O's expected return & risk?
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