Question

A portfolio manager is considering the benefits of increasing her diversification by investing overseas. She can purchase shares in individual country funds with the following characteristics:


a. What are the expected return and standard deviation of return of a portfolio with 25% invested in the United Kingdom and 75% in the United States?
b. What are the expected return and standard deviation of return of a portfolio with 25% invested in Spain and 75% in the United States?
c. Calculate the expected return and standard deviation of return of a portfolio with 50% invested in the United States and 50% in the United Kingdom; with 50% invested in the United States and 50% invested in Spain.
d. Calculate the expected return and standard deviation of return of a portfolio with 25% invested in the United States and 75% in the United Kingdom; with 25% invested in the United States and 75% invested in Spain.
e. Plot these two sets of risk-return combinations (parts a through d), as in Exhibit 15.5. Which leads to a better set of risk-return choices, Spain or the United Kingdom?
f. How can you achieve an even better risk-returncombination?


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  • CreatedJune 27, 2014
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