Question
You invest 60% of your financial assets in Standard & Poor's Depository Receipts (SPY) and 40% of your financial assets in MSCI EAFE Index Fund
You invest 60% of your financial assets in Standard & Poor's Depository Receipts (SPY) and 40% of your financial assets in MSCI EAFE Index Fund (EFA). SPY has an expected return of 8% and a standard deviation of 15%. EFA has an expected return of 10% and a standard deviation of 18%. The correlation between the two investments is 0.6. The risk-free rate is 1%.
a.Briefly explain the investment strategies of SPY and EFA.
b.What is the expected return, the standard deviation, and the Sharpe ratio of your portfolio? Show the mathematical equations that you use to derive these measures.
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Financial Markets And Institutions
Authors: Frederic S. Mishkin, Stanley G. Eakins
9th Edition
0134519264, 9780134519265
