Question
The fund manager has invested 10 million euros into a bond portfolio which has expected annual return of 4% and expected risk of 7%. To
- The fund manager has invested 10 million euros into a bond portfolio which has expected annual return of 4% and expected risk of 7%.
To reduce his overall risk, portfolio manager decided to invest into high yield emerging debt with expected annual return of 16% and risk of 23%.
The correlation between two portfolios is -0.65
- How much weight should be given to each in order to reduce overall risk level to a minimum?
- What is the portfolio risk at these weights?
- What would be the expected combined return ( % and money) from both portfolios if 2 million is invested to high yield debt?
|
| return | risk | a. Weight at min. risk | b. Risk at min. weight | Amount invested | c. Total return in euros |
| Bond portfolio | 4.0% | 7.0% |
|
| 8 mio |
|
| High yield debt | 16.0% | 23.0% |
| 2 mio | ||
| Correlation coefficient | -0.65 |
|
|
|
| |
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Income Tax Fundamentals 2013
Authors: Gerald E. Whittenburg, Martha Altus Buller, Steven L Gill
31st Edition
1111972516, 978-1285586618, 1285586611, 978-1285613109, 978-1111972516
