Joyce Bromfield has $30,000 to invest for 5 years. She will allocate her money to government Treasury
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Question:
Joyce Bromfield has $30,000 to invest for 5 years. She will allocate her money to government Treasury Bills (T-Bills), mutual fund A, and mutual fund B as follows: $4,500 in T-bills; $13,500 in A and $12,000 in B. Fund A has a front-end fee of 5%, MER of 2% and no rear-end fee. Fund B has no front-end fee, MER of 2.5%, and rear-end fee of 5%. Assume that the appropriate discount rate to compare fund fees is 5%.
The expected rates of return and standard deviations of the funds are as follows:
Expected Return (%) | Standard deviation (%) | |
A | 10 | 20 |
B | 13 | 25 |
T-bill | 3 | 0 |
The correlation coefficients between A and B is 0.4 .
Answer:
- What is the expected rate of return of her portfolio?
- What is the standard deviation of her portfolio?
- If her portfolio’s return is normally distributed, what is the probability
- That she will lose money next year?
- That she will earn at least 15% next year?
- What is the annual fee of each of the funds, A and B, if she holds the funds for 6 years?
Related Book For
Statistics for Business and Economics
ISBN: 978-0132930192
8th edition
Authors: Paul Newbold, William Carlson, Betty Thorne
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