Problem 6-10

Consider historical data showing that the average annual rate of return on the S&P 500 portfolio over the past 85 years has averaged roughly 8% more than the Treasury bill return and that the S&P 500 standard deviation has been about 38% per year. Assume these values are representative of investors' expectations for future performance and that the current T-bill rate is 4%.

Calculate the expected return and variance of portfolios invested in T-bills and the S&P 500 index with weights as follows: (Leave no cells blank - be certain to enter "0" wherever required. Do not enter your answer as a percentage but in a decimal format. Round "Expected Return" to 4 decimal places and the "Variance" to 4 decimal places.)

WBills	WIndex	Expected Return	Variance
0.4	0.6	0.0880	0.0520	Example
0.6	0.4
1.0	0.0
0.8	0.2
0.0	1.0
0.2	0.8