What are the investment proportions in the minimum-variance portfolio of the two risky funds, and what is the expected value and standard deviation of its rate of return?
You are considering three mutual funds. The first is a stock fund, the second is a long-term government and corporate bond fund, and the third is a T-bill money market fund that yields a rate of 8%. The probability distribution of the risky funds is as follows: stock fund bond fund | MMMF (t-bills) Average return 20.0% 12.0% 8.0% Std. Deviation of return 30.0% 15.0% Correlation of returns (stock & bond funds) 0.1 1. (2 points) What are the investment proportions in the minimum-variance portfolio of the two risky funds, and what is the expected value and standard deviation of its rate minimum variance portfolio (stock fund + bond fund) weight of stock fund confirm the stock weight using the formula from the book (or calculus), rather than using excel solver weight of bond fund expected return Std. Deviation of return 2. (2 points) Tabulate and graph the investment opportunity set of the two risky funds. Use investment proportions for the stock fund of 0% to 100% in increments of 10% place graph here: weight of stock fund st dev. Expected return Chart Title 0.1 120.0% 0.2 100.0% 0.3 0.4 80.0% 0.5 0.6 0.7 0.8 0.9 0.0% 20.0% 40.0% 60.0% 80.0% 3. (2 points) Solve numerically for the proportions of each asset and for the expected return and standard deviation of the optimal risky portfolio. optimal risky portfolio (stock fund + bond fund) weight of stock fund weight of bond fund expected return Std. Deviation of return What is the Sharpe ratio of the best feasible CAL? Sharpe ratio 4. (2 points) You create a 3 asset portfolio with an expected return of 14%, that is efficient, and on the best feasible CAL. What is the standard deviation of your portfolio? What is the proportion invested in the T-bill fund and each of the two risky funds? portfolio characteristics expected return Std. Deviation of return overall weight of optimal risky portfolio weight oft-bills weight of stock fund weight of bond fund 5. (2 points) If you were to use only the two risky funds, and still require an expected return of 14%, what would be the investment proportions of your portfolio? Compare its standard deviation to that of the 3-component optimized portfolio above. What do you conclude? portfolio characteristics weight of stock fund weight of bond fund expected return Std. Deviation of return You are considering three mutual funds. The first is a stock fund, the second is a long-term government and corporate bond fund, and the third is a T-bill money market fund that yields a rate of 8%. The probability distribution of the risky funds is as follows: stock fund bond fund | MMMF (t-bills) Average return 20.0% 12.0% 8.0% Std. Deviation of return 30.0% 15.0% Correlation of returns (stock & bond funds) 0.1 1. (2 points) What are the investment proportions in the minimum-variance portfolio of the two risky funds, and what is the expected value and standard deviation of its rate minimum variance portfolio (stock fund + bond fund) weight of stock fund confirm the stock weight using the formula from the book (or calculus), rather than using excel solver weight of bond fund expected return Std. Deviation of return 2. (2 points) Tabulate and graph the investment opportunity set of the two risky funds. Use investment proportions for the stock fund of 0% to 100% in increments of 10% place graph here: weight of stock fund st dev. Expected return Chart Title 0.1 120.0% 0.2 100.0% 0.3 0.4 80.0% 0.5 0.6 0.7 0.8 0.9 0.0% 20.0% 40.0% 60.0% 80.0% 3. (2 points) Solve numerically for the proportions of each asset and for the expected return and standard deviation of the optimal risky portfolio. optimal risky portfolio (stock fund + bond fund) weight of stock fund weight of bond fund expected return Std. Deviation of return What is the Sharpe ratio of the best feasible CAL? Sharpe ratio 4. (2 points) You create a 3 asset portfolio with an expected return of 14%, that is efficient, and on the best feasible CAL. What is the standard deviation of your portfolio? What is the proportion invested in the T-bill fund and each of the two risky funds? portfolio characteristics expected return Std. Deviation of return overall weight of optimal risky portfolio weight oft-bills weight of stock fund weight of bond fund 5. (2 points) If you were to use only the two risky funds, and still require an expected return of 14%, what would be the investment proportions of your portfolio? Compare its standard deviation to that of the 3-component optimized portfolio above. What do you conclude? portfolio characteristics weight of stock fund weight of bond fund expected return Std. Deviation of return
