Percival Hygiene has $30 million invested in long-term corporate bonds. This bond portfolios expected annual rate of
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Percival Hygiene has $30 million invested in long-term corporate bonds. This bond portfolio’s expected annual rate of return is 24%, and the annual standard deviation is 13%. Amanda Reckonwith, Percival’s financial adviser, recommends that Percival consider investing in an index fund that closely tracks the Standard & Poor’s 500 Index. The index has an expected return of 20%, and its standard deviation is 18%. Suppose Percival puts all his money in a combination of the index fund and Treasury bills. The Treasury bill yield is 6%.
Can he thereby improve his expected rate of return without changing the risk of his portfolio?
Related Book For
Principles of Corporate Finance
ISBN: 978-0072869460
7th edition
Authors: Richard A. Brealey, Stewart C. Myers
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