As part of your oversight of a pension plan, you are seeking to construct an optimal...

 

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As part of your oversight of a pension plan, you are seeking to construct an optimal portfolio from the equity fund choices shown below. The S&P500 has an expected return of 12.5% and an estimated standard deviation of 14.9%. Fund Type Global Growth US Growth US Small Cap US Dividend αi 4.0 3.5 5.5 3.0 B₁ 1.3 1.5 1.8 1.2 oei (Residual Risk) 40 45 60 25 What are the expected returns, standard deviations of returns and covariance using the single- index model? (20 marks) As part of your oversight of a pension plan, you are seeking to construct an optimal portfolio from the equity fund choices shown below. The S&P500 has an expected return of 12.5% and an estimated standard deviation of 14.9%. Fund Type Global Growth US Growth US Small Cap US Dividend αi 4.0 3.5 5.5 3.0 B₁ 1.3 1.5 1.8 1.2 oei (Residual Risk) 40 45 60 25 What are the expected returns, standard deviations of returns and covariance using the single- index model? (20 marks)

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