The portfolio manager is considering to change the composition of the below portfolio from 75 %...
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The portfolio manager is considering to change the composition of the below portfolio from 75 % bonds and 25 % commodities to 65 % bonds and 35 % commodities? The annual geometric return of the portfolio with the new structure would be 3.25%. The risk free rate is assumed to be 2%. 1-) What is the change in risk due to increase in commodities? 2) What is the change in risk due to decrease in the weight of bonds? 3) What is the total risk of the proposed portfolio structure? 4) What is the Sharpe ratio of the old and the new portfolios? 5) Should the portfolio manager go ahead and change the structure of the portfolio? Explain. Wbond (%) Wcommodity (%) rbond (%) commodity Rp 8.00% 8.38% 25 8.50% 25 -0.50% 25 3.50% 25 -0.50% -1.30%-0.70% 8.70% 4.80% -2.40%-0.98% 25 3.80% 25 3.40% Annual Geometric Return of Portfolio Year 2016 2017 2018 2019 2020 2021 75 75 75 75 75 75 Std deviation bonds Std deviation commodities 3.05% 6.05% 12.00% 5.85% -3.00% 1.80% 3.19% The portfolio manager is considering to change the composition of the below portfolio from 75 % bonds and 25 % commodities to 65 % bonds and 35 % commodities? The annual geometric return of the portfolio with the new structure would be 3.25%. The risk free rate is assumed to be 2%. 1-) What is the change in risk due to increase in commodities? 2) What is the change in risk due to decrease in the weight of bonds? 3) What is the total risk of the proposed portfolio structure? 4) What is the Sharpe ratio of the old and the new portfolios? 5) Should the portfolio manager go ahead and change the structure of the portfolio? Explain. Wbond (%) Wcommodity (%) rbond (%) commodity Rp 8.00% 8.38% 25 8.50% 25 -0.50% 25 3.50% 25 -0.50% -1.30%-0.70% 8.70% 4.80% -2.40%-0.98% 25 3.80% 25 3.40% Annual Geometric Return of Portfolio Year 2016 2017 2018 2019 2020 2021 75 75 75 75 75 75 Std deviation bonds Std deviation commodities 3.05% 6.05% 12.00% 5.85% -3.00% 1.80% 3.19%
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SOLUTION To assess the impact of changing the composition of the portfolio from 75 bonds and 25 commodities to 65 bonds and 35 commodities we need to calculate the changes in risk and the Sharpe ratio ... View the full answer
Related Book For
Income Tax Fundamentals 2013
ISBN: 9781285586618
31st Edition
Authors: Gerald E. Whittenburg, Martha Altus Buller, Steven L Gill
Posted Date:
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