Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Suppose you have some money to investfor simplicity, $1-and you are planning to put a fraction w into a stock market mutual fund and the

image text in transcribed Suppose you have some money to investfor simplicity, $1-and you are planning to put a fraction w into a stock market mutual fund and the rest, 1w, into a bond mutual fund. Suppose that $1 invested in a stock fund yields RS after 1 year and that $1 invested in a bond fund yields Rb, suppose that Rs is random with mean 0.09(9%) and standard deviation 0.08 , and suppose that Rb is random with mean 0.05 (5%) and standard deviation 0.04 . The correlation between RS and Rb is 0.27 . If you place a fraction w of your money in the stock fund and the rest, 1w, in the bond fund, then the return on your investment is R=wRS+(1w)Rb. Suppose that w=0.55. Compute the mean and standard deviation of R. The mean is (Round your response to three decimal places.) The standard deviation is (Round your response to three decimal places.) Suppose that w=0.82. Compute the mean and standard deviation of R. The mean is (Round your response to three decimal places.) The standard deviation is (Round your response to three decimal places.) What value of w makes the mean of R as large as possible? w= maximizes . (Round your response to two decimal places.) Suppose you have some money to investfor simplicity, $1-and you are planning to put a fraction w into a stock market mutual fund and the rest, 1w, into a bond mutual fund. Suppose that $1 invested in a stock fund yields RS after 1 year and that $1 invested in a bond fund yields Rb, suppose that Rs is random with mean 0.09(9%) and standard deviation 0.08 , and suppose that Rb is random with mean 0.05 (5%) and standard deviation 0.04 . The correlation between RS and Rb is 0.27 . If you place a fraction w of your money in the stock fund and the rest, 1w, in the bond fund, then the return on your investment is R=wRS+(1w)Rb. Suppose that w=0.55. Compute the mean and standard deviation of R. The mean is (Round your response to three decimal places.) The standard deviation is (Round your response to three decimal places.) Suppose that w=0.82. Compute the mean and standard deviation of R. The mean is (Round your response to three decimal places.) The standard deviation is (Round your response to three decimal places.) What value of w makes the mean of R as large as possible? w= maximizes . (Round your response to two decimal places.)

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

Fundamentals of Financial Management

Authors: Eugene F. Brigham, Joel F. Houston

Concise 6th Edition

324664559, 978-0324664553

More Books

Students also viewed these Finance questions