2. Your mentor has given you a set of data on another pair of stock fund...
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2. Your mentor has given you a set of data on another pair of stock fund and bond fund: Stock Fund Bond Fund Expected Returns (%) 18 7 Standard Deviation (%) 35 19 The correlation coefficient between the fund returns is 0.05. a. Given the T-bill rate is 3%. Calculate the weight in stock fund, expected return and standard deviation of the optimal risky portfolio. (6 marks) b. Calculate the Sharpe ratio for the optimal risky portfolio. (2 marks) c. Suppose an investor decides to invest in the optimal risky portfolio a proportion (y) of his total investment budget so that his overall portfolio will have an expected rate of return of 11%. (i) Calculate the proportion y? (2 marks) (ii) Calculate the standard deviation of the investor's portfolio? (2 marks) d. Draw the CAL on an expected return/standard deviation diagram which shows the slope of the CAL and the position of the investor on the CAL. (2 marks) 2. Your mentor has given you a set of data on another pair of stock fund and bond fund: Stock Fund Bond Fund Expected Returns (%) 18 7 Standard Deviation (%) 35 19 The correlation coefficient between the fund returns is 0.05. a. Given the T-bill rate is 3%. Calculate the weight in stock fund, expected return and standard deviation of the optimal risky portfolio. (6 marks) b. Calculate the Sharpe ratio for the optimal risky portfolio. (2 marks) c. Suppose an investor decides to invest in the optimal risky portfolio a proportion (y) of his total investment budget so that his overall portfolio will have an expected rate of return of 11%. (i) Calculate the proportion y? (2 marks) (ii) Calculate the standard deviation of the investor's portfolio? (2 marks) d. Draw the CAL on an expected return/standard deviation diagram which shows the slope of the CAL and the position of the investor on the CAL. (2 marks)
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Answer rating: 100% (QA)
To solve the given questions well use the following variables Rf Riskfree rate 3 Rs Expected return of the stock fund 18 Rb Expected return of the bond fund 7 s Standard deviation of the stock fund 35 ... View the full answer
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