An retiree has decided to create a portfolio that contains the Vanguard S&P 500 Index fund,...

 

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An retiree has decided to create a portfolio that contains the Vanguard S&P 500 Index fund, an aggressive growth mutual fund, and government Treasury bills. The S&P 500 Index fund is identical in risk to the market portfolio, while the aggressive growth mutual fund has a beta of 1.50. The retiree has decided on the following plan: ASSET: Dollars Invested: $200,000 Treasury Bills Vanguard S&P 500 $150,000 Aggressive Growth Fund $450,000 Currently, investors are earning a 2% return on the Treasury bills. The retiree is not sure about the expected return on the Vanguard fund, but he does know that the market portfolio risk premium is 6.00%. What is the expected value of this portfolio in one year if we use the required return? An retiree has decided to create a portfolio that contains the Vanguard S&P 500 Index fund, an aggressive growth mutual fund, and government Treasury bills. The S&P 500 Index fund is identical in risk to the market portfolio, while the aggressive growth mutual fund has a beta of 1.50. The retiree has decided on the following plan: ASSET: Dollars Invested: $200,000 Treasury Bills Vanguard S&P 500 $150,000 Aggressive Growth Fund $450,000 Currently, investors are earning a 2% return on the Treasury bills. The retiree is not sure about the expected return on the Vanguard fund, but he does know that the market portfolio risk premium is 6.00%. What is the expected value of this portfolio in one year if we use the required return?

Answer rating: 100% (QA)

To calculate the expected value of the portfolio in one year we need to consider the expected returns and weights of each asset in the portfolio Given ... View the full answer