Question 1 Stock market United States Japan Expected Return (mean) 1.0% per month 0.6% per month...
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Question 1 Stock market United States Japan Expected Return (mean) 1.0% per month 0.6% per month Volatility (SD) 3.0% per month 2.0% per month The correlation coefficient between the two markets is -0.2. The monthly risk-free interest rate is 0.2% and that investors can take a short (negative) position in either the US or the Japanese market. (a) Suppose that you invest equally, i.e., 50% each, in the two markets. What is the expected return and standard deviation risk of the resulting international portfolio? (b) What is the optimal international portfolio comprised of the US and Japanese markets? (c) Now instead of -0.2, let's assume that the correlation between the US and the Japanese market is 0.2. What is the Sharpe ratio of the optimal international portfolio now? Question 1 Stock market United States Japan Expected Return (mean) 1.0% per month 0.6% per month Volatility (SD) 3.0% per month 2.0% per month The correlation coefficient between the two markets is -0.2. The monthly risk-free interest rate is 0.2% and that investors can take a short (negative) position in either the US or the Japanese market. (a) Suppose that you invest equally, i.e., 50% each, in the two markets. What is the expected return and standard deviation risk of the resulting international portfolio? (b) What is the optimal international portfolio comprised of the US and Japanese markets? (c) Now instead of -0.2, let's assume that the correlation between the US and the Japanese market is 0.2. What is the Sharpe ratio of the optimal international portfolio now?
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Related Book For
International Financial Management
ISBN: 978-0078034657
6th Edition
Authors: Cheol S. Eun, Bruce G.Resnick
Posted Date:
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