Assume there are only three financial assets in the market: bond fund, stock fund and Treasury...
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Assume there are only three financial assets in the market: bond fund, stock fund and Treasury bond (T- bond). The expected return and standard deviation of the three financial assets are as follows: Expect return (%) Standard deviation (%) 10 30 5 The correlation coefficient between bond fund and stock fund is -20%. Financial assets Bond fund Stock fund T-bond 20 60 0 Required: a. If you are going to invest in the optimal portfolio, calculate the expected return and standard deviation of returns for this portfolio. b. If you are going to invest in the global minimum variance portfolio that consists of bond fund and stock fund, calculate the expected return and standard deviation of returns of this portfolio. c. Calculate the slope of Capital Allocation Line (CAL). d. If your risk-aversion coefficient is A = 5, how much will you invest in bond fund, stock fund and T- bond respectively? Assume there are only three financial assets in the market: bond fund, stock fund and Treasury bond (T- bond). The expected return and standard deviation of the three financial assets are as follows: Expect return (%) Standard deviation (%) 10 30 5 The correlation coefficient between bond fund and stock fund is -20%. Financial assets Bond fund Stock fund T-bond 20 60 0 Required: a. If you are going to invest in the optimal portfolio, calculate the expected return and standard deviation of returns for this portfolio. b. If you are going to invest in the global minimum variance portfolio that consists of bond fund and stock fund, calculate the expected return and standard deviation of returns of this portfolio. c. Calculate the slope of Capital Allocation Line (CAL). d. If your risk-aversion coefficient is A = 5, how much will you invest in bond fund, stock fund and T- bond respectively?
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Answer rating: 100% (QA)
To solve this problem we can use the principles of portfolio theory and the Capital Market Line CML Given data Bond fund Expected return 10 Standard ... View the full answer
Related Book For
Corporate Finance Core Principles and Applications
ISBN: 978-1259289903
5th edition
Authors: Stephen Ross, Randolph Westerfield, Jeffrey Jaffe, Bradford Jordan
Posted Date:
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