Question
You are trying to decide whether to buy Banguards Equity Fund and/or its Bond Fund. For next year, you have identified several possible scenarios to
You are trying to decide whether to buy Banguards Equity Fund and/or its Bond Fund. For next year, you have identified several possible scenarios to which you have assigned probabilities. You have also estimated expected returns for the two funds for each scenario. Your spreadsheet looks like the following.
Stock Fund | Bond Fund | ||
Scenario | Probability | Return% | Return% |
Recession | 0.15 | -18.00 | 13.00 |
Weak Economy | 0.05 | 7.00 | 4.00 |
Average Economy | 0.60 | 10.0 | 6.00 |
Strong Economy | 0.20 | 28.00 | -9.00 |
Calculate the expected returns, variances, and standard deviations of the different portfolio combinations described in the table below. Make sure you enter the full number. For example, if the return you estimated for a single portfolio is 0.7%, you should enter 0.7.
w1 = Weight of Stock Fund | w2 = Weight of Bond Fund | |||
Portfolios Exp Return% | Standard Deviation% |
| ||
0.10 | 0.90 | Answer | Answer |
|
0.20 | 0.80 | Answer | Answer |
|
0.30 | 0.70 | Answer | Answer |
|
0.40 | 0.60 | Answer | Answer |
|
0.50 | 0.50 | Answer | Answer |
|
0.60 | 0.40 | Answer | Answer |
|
0.70 | 0.30 | Answer | Answer |
|
0.80 | 0.20 | Answer | Answer |
|
0.90 | 0.10 | Answer | Answer |
|
The Minimum Variance Portfolio consists of:
Weight of Stock Fund=Answer
Weight of Bond Fund=Answer
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