Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Suppose you can invest in only the market index fund and 12-month Treasury bill because of some regulation. E[r]=11%, SD[r]=20%, and rf=3% per year. You

Suppose you can invest in only the market index fund and 12-month Treasury bill because of some regulation. E[r]=11%, SD[r]=20%, and rf=3% per year. You are a portfolio manager at Fidelity. Suppose, based on your price of risk and the portfolio theory, you invest today $0.4m in the market index fund and $0.6m in the 12-month treasury bill whose maturity is one year from now. One year later, the annual net return of the market index fund turns out 30%. If E[r], SD[r], rf, and your price of risk remain the same, how should you rebalance your portfolio? That is, do you have to sell or buy the market index fund after you observe its 30% return per year, based on the portfolio theory? Express your answer as follows. If you will sell $0.24m of the market index fund and move that money to the 12-month Treasury bill, type -240000. If you will sell $0.34m of 12-month Treasury bill and buy the market index fund with that money, type 340000

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

More Books

Students also viewed these Accounting questions

Question

A phasor voltage is given by V = j5 V. Find v(t).

Answered: 1 week ago

Question

=+ (c) Show that the Bernoulli shift is mixing.

Answered: 1 week ago