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Suppose that the only assets available for you to invest in are a risk-free bond yielding 3% per year and the S&P 500 ETF
Suppose that the only assets available for you to invest in are a risk-free bond yielding 3% per year and the S&P 500 ETF you gathered data for in question 1. Download historical monthly returns over the last five years for your S&P 500 ETF, and add in monthly returns for this risk-free bond using the assumption that the bond returns 3%/12 = 0.25% each and every month. For example, your excel returns should look like this: date SPY risk-free 11/1/2022 5.56% 0.25% 12/1/2022 -6.19% 0.25% 1/1/2023 6.78% 0.25% Calculate the mean return and standard deviation for this treasury bond. Also calculate the correlation of this bond with your S&P 500 ETF. Next, calculate returns and volatilities for four other portfolios: one that invests 25% in the S&P 500 ETF and 75% in the risk-free bond, one at 50%/50%, one at 75% S&P and 25% risk-free bond, and one that buys 125% of the S&P 500 and is short 25% of the risk-free bond. Show a graph in mean-variance space of the returns and volatilities for these four portfolios along with the risk-free bond and the S&P 500 ETF.
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Answer To calculate the mean return and standard deviation for the riskfree bond we can use the monthly returns provided Since the bond returns 025 ea...Get Instant Access to Expert-Tailored Solutions
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