ABC is a relatively small fund with $210m allocated to equity securities and $90 million allocated to fixed-income securities, with an observed correlation between the two asset classes of 0.3. Equity securities are expected to yield 8.5% per year while fixed-income securities are expected to yield 4%. The standard deviations of the two asset classes are 18% and 12%, respectively.

Calculate the annual expected return and standard deviation for the portfolio. Estimate and interpret the 5% annual value-at-risk.

Estimate and interpret the 5% monthly value-at-risk.

Answer rating: 100% (QA)

To calculate the annual expected return and standard deviation for the portfolio we need to consider the weights of equity and fixedincome securities ... View the full answer