Questions e,f,g thx
The following table presents the performance of stock and bond funds under various scenarios. Scenario Probability Rate of return of stock fund (%) Rate of return of bond fund (%) 0.05 -40 -9 0.20 -15 11 Severe recession Mild recession Normal growth Boom 0.50 12 5 0.25 30 -2 a. Calculate the expected returns of the stock and bond funds. (4 marks) b. Calculate the standard deviations of the stock and bond funds. (4 marks) c. Calculate the correlation coefficient of the stock and bond funds. (2 marks) d. Suppose an investor forms a portfolio with stocks and bonds. Find the investment opportunity set in differing proportions. (10 marks) Portfolio expected Weights in stock fund Portfolio standard deviation return 0.1 0.2 0.3 e. Use Excel to draw the investment opportunity set. (3 marks) f. Calculate the weight in stock fund, expected return and standard deviation of the minimum-variance portfolio. (6 marks) g. Given the T-bill rate is 2.5%. Calculate the weight in stock fund, expected return and standard deviation of the optimal risky portfolio. (6 marks) h. Calculate the Sharpe ratio for the optimal risky portfolio. (2 marks) i. Use Excel to draw the capital allocation line (CAL) on the diagram in part (e). Show the position of the optimal risky portfolio on the CAL. (3 marks) j. Suppose an investor chooses to invest 70% of his investment fund in the optimal risky portfolio and the remainder in a risk-free asset. Calculate the expected return and standard deviation of his portfolio. (4 marks) The following table presents the performance of stock and bond funds under various scenarios. Scenario Probability Rate of return of stock fund (%) Rate of return of bond fund (%) 0.05 -40 -9 0.20 -15 11 Severe recession Mild recession Normal growth Boom 0.50 12 5 0.25 30 -2 a. Calculate the expected returns of the stock and bond funds. (4 marks) b. Calculate the standard deviations of the stock and bond funds. (4 marks) c. Calculate the correlation coefficient of the stock and bond funds. (2 marks) d. Suppose an investor forms a portfolio with stocks and bonds. Find the investment opportunity set in differing proportions. (10 marks) Portfolio expected Weights in stock fund Portfolio standard deviation return 0.1 0.2 0.3 e. Use Excel to draw the investment opportunity set. (3 marks) f. Calculate the weight in stock fund, expected return and standard deviation of the minimum-variance portfolio. (6 marks) g. Given the T-bill rate is 2.5%. Calculate the weight in stock fund, expected return and standard deviation of the optimal risky portfolio. (6 marks) h. Calculate the Sharpe ratio for the optimal risky portfolio. (2 marks) i. Use Excel to draw the capital allocation line (CAL) on the diagram in part (e). Show the position of the optimal risky portfolio on the CAL. (3 marks) j. Suppose an investor chooses to invest 70% of his investment fund in the optimal risky portfolio and the remainder in a risk-free asset. Calculate the expected return and standard deviation of his portfolio. (4 marks)
