A fund manager (FM) is constructing a portfolio of two asset classes, a stock and a...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
A fund manager (FM) is constructing a portfolio of two asset classes, a stock and a corporate bond. The return on the stock is 12%, and its standard deviation of return is 17%, while for the bond is 5% and its standard deviation is 12%. The correlation between their returns is -0.2. 1.1 If the FM requires a portfolio return of 9.2%, what should the proportions of each asset class be? (present your calculations) (5 marks) 1.2 What is the standard deviation of return of the above portfolio? (present your calculations) (5 marks) SSOS VIGE 1.3 Interpret the standard deviation of return of the portfolio in relation to the weighted average of the risk of those two assets (present your calculations). Present, on a graph, the relationship between risk and return of the portfolio in 1.1. Identify the point (P) which would represent the portfolio. (5 marks) RADA Discuss the diversification benefits from the combination of those two assets. Relate to your graph. (5 marks) EBAIG What is the utility of an investor at point P (the portfolio in 1.1) with a risk aversion coefficient of 3? 29TAC MAD OT EMOT (5 marks) Gold is owned by many rational investors as part of an extended portfolio. Why? (5 marks) A fund manager (FM) is constructing a portfolio of two asset classes, a stock and a corporate bond. The return on the stock is 12%, and its standard deviation of return is 17%, while for the bond is 5% and its standard deviation is 12%. The correlation between their returns is -0.2. 1.1 If the FM requires a portfolio return of 9.2%, what should the proportions of each asset class be? (present your calculations) (5 marks) 1.2 What is the standard deviation of return of the above portfolio? (present your calculations) (5 marks) SSOS VIGE 1.3 Interpret the standard deviation of return of the portfolio in relation to the weighted average of the risk of those two assets (present your calculations). Present, on a graph, the relationship between risk and return of the portfolio in 1.1. Identify the point (P) which would represent the portfolio. (5 marks) RADA Discuss the diversification benefits from the combination of those two assets. Relate to your graph. (5 marks) EBAIG What is the utility of an investor at point P (the portfolio in 1.1) with a risk aversion coefficient of 3? 29TAC MAD OT EMOT (5 marks) Gold is owned by many rational investors as part of an extended portfolio. Why? (5 marks)
Expert Answer:
Answer rating: 100% (QA)
11 To find the proportions of each asset class in the portfolio we can use the following formula Let x be the proportion of the stock and 1x be the proportion of the corporate bond The portfolio retur... View the full answer
Related Book For
Fundamentals of corporate finance
ISBN: 978-0073382395
9th edition
Authors: Stephen Ross, Randolph Westerfield, Bradford Jordan
Posted Date:
Students also viewed these finance questions
-
13. What is a lower bound for the price of 3-month call option on a non- dividend-paying stock when the stock price is $50, the strike price is $45, and the 3-month risk-free interest rate is 8%?...
-
CoursHeroTranscribedText: A 5-year loan in the amount of $48,000 is to be repaid in equal annual payments. What is the remaining principal balance after the third payment if the interest rate is 5...
-
Prepare the schedule of year-end deferred tax assets and liabilities for each year. The schedule should separately list the sources of the firms ending deferred tax assets and deferred tax...
-
The pressure of a monatomic ideal gas is doubled, while the volume is cut in half. By what factor is the internal energy of the gas multiplied? (a) 1/4 (b) 1/2 (c) 1 (d) 2 (e) 4
-
Jill Parks was a healthy, vibrant 22-year-old college student embarking on her senior year. One evening after drinking at a local bar with her friends, Jill was crossing the street when an oncoming...
-
Laura Neilson, a job specialist with Vocational and Educational Services for Individuals with Disabilities, responded to an advertisement in a New York newspaper for a position as a shower, a job...
-
The University of South Wisconsin has had steady enrollments over the past five years. The school has its own bookstore, called University Book Store, but there are also three private bookstores in...
-
The Reading Warehouse distributes hardback books to retail stores and extends credit terms of 2/7, n/30 to all of its customers. During the month of June the following inventory transactions...
-
I need help on this read from bottom to top. Image transcription text 7"} The second ?nancial statement to prepare is the statement of retained earnings. To determine the ending balance of...
-
Determine if the conditions of the mean value theorem are met by the | function f(x)=x+2x on [- 1, 1]. If so, find the values of c in (-1, 1) guaranteed by the theorem.
-
What are some useful ways in which you can demonstrate that you would be an asset to the company?
-
What 8 developments prior to 1960 were important to the development of blood evidence?
-
A firm which named Beyonce is currently growing fast. Current risk free rate is 7%; however, since the firm is somewhat risky investors requires a risk premium. So the required rate of return for the...
-
Explain the terms required in Texas for an enforceable physician's noncompete provision.
-
Explain how each of these 4 strengths listed below, will enable a person to develop a healthy organisational compliance culture or aid in this development. The answer must provide an excellent...
-
Write and explain in detail the factors affecting the Speed of Computer?
-
Write a program to move a signed number from smaller register to bigger register. Hint: movzx ax, bl Topic: Data Related Operators and Directives in assembly language
-
Mark Sexton and Todd Story have been discussing the future of S&S Air. The company has been experiencing fast growth, and the two see only clear skies in the company's future. However, the fast...
-
Consider a project to supply Detroit with 35,000 tons of machine screws annually for automobile production. You will need an initial $3,200,000 investment in threading equipment to get the project...
-
In the previous question, assume Phillips pays out half of net income in the form of a cash dividend. Costs and assets vary with sales, but debt and equity do not. Prepare the pro forma statements...
-
Emily throws a soccer ball out of her dorm window to Allison, who is waiting below to catch it. If Emily throws the ball at an angle of 30 below horizontal with a speed of 12 m/s, how far from the...
-
In punting a football, the kicker tries to maximize both the distance of the kick and its hang timethe time that the ball is in the air. A kicker gets off a great punt with a hang time of 5.0 s that...
-
The moon completes one (circular) orbit of the earth in 27.3 days. The distance from the earth to the moon is 3.84 10 8 m. What is the moons centripetal acceleration?
Study smarter with the SolutionInn App