Gaby Nobelium is a passionate investor. She wants to invest his considerable wealth of $15 million...

 

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Gaby Nobelium is a passionate investor. She wants to invest his considerable wealth of $15 million in a diversified portfolio consisting of stocks, bonds, and real estate investment trusts (REITs). Tracy has collected information in the two tables below and wants to see whether her weight allocation achieves her investment objectives. Asset A- Stocks Domestic B - Stocks International C - Bonds Domestic D- Bonds International E- Global REIT A B D Table 1: Return, Risk, and Weights E(R;) E A 1 0.75 0.54 0.5 0.25 B 0.75 1 11% 0.57 0.45 0.4 13% 2% 3% 6% 6 1 0.71 0.62 18% Table 2: Correlation Matrix of the Five Assets D 0.54 0.5 0.57 0.45 22% 12% 14% 13% 0.71 1 0.59 12% 48% 15% 10% 15% E 0.25 0.4 0.62 0.59 1 A. Consider the data in the top table above. What is the expected return of Gaby's portfolio? B. Consider the data in the above two tables. What is the risk (standard deviation) of Gaby's portfolio? C. How could Gaby change the weights of her portfolio to achieve at least the same expected return but with less portfolio risk? Gaby Nobelium is a passionate investor. She wants to invest his considerable wealth of $15 million in a diversified portfolio consisting of stocks, bonds, and real estate investment trusts (REITs). Tracy has collected information in the two tables below and wants to see whether her weight allocation achieves her investment objectives. Asset A- Stocks Domestic B - Stocks International C - Bonds Domestic D- Bonds International E- Global REIT A B D Table 1: Return, Risk, and Weights E(R;) E A 1 0.75 0.54 0.5 0.25 B 0.75 1 11% 0.57 0.45 0.4 13% 2% 3% 6% 6 1 0.71 0.62 18% Table 2: Correlation Matrix of the Five Assets D 0.54 0.5 0.57 0.45 22% 12% 14% 13% 0.71 1 0.59 12% 48% 15% 10% 15% E 0.25 0.4 0.62 0.59 1 A. Consider the data in the top table above. What is the expected return of Gaby's portfolio? B. Consider the data in the above two tables. What is the risk (standard deviation) of Gaby's portfolio? C. How could Gaby change the weights of her portfolio to achieve at least the same expected return but with less portfolio risk?

Answer rating: 100% (QA)

A To calculate the expected return of Gabys portfolio we need to use the formula for the weighted average of expected returns Expected Return of Portf... View the full answer