You have $10 million for investing. You consider the following asset allocation; $7 million in fund...
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You have $10 million for investing. You consider the following asset allocation; $7 million in fund A, $3 million in fund B. Fund A and fund B correlation is 0.85 Fund A Fund B Expected Return Standard Deviation 20% 25% Fund C 25% b. Fund C is also available: a. Calculate the portfolio expected return and standard deviation. Expected Standard Return Deviation 16% 27% 20% Fund C has a Zero correlation with fund A; You consider selling all fund B holdings and investing all the proceeds in the new fund C. Your colleague states that since fund C has higher standard deviation than B, it is not a prudent investment. Do you agree? Show your arguments quantitatively. You have $10 million for investing. You consider the following asset allocation; $7 million in fund A, $3 million in fund B. Fund A and fund B correlation is 0.85 Fund A Fund B Expected Return Standard Deviation 20% 25% Fund C 25% b. Fund C is also available: a. Calculate the portfolio expected return and standard deviation. Expected Standard Return Deviation 16% 27% 20% Fund C has a Zero correlation with fund A; You consider selling all fund B holdings and investing all the proceeds in the new fund C. Your colleague states that since fund C has higher standard deviation than B, it is not a prudent investment. Do you agree? Show your arguments quantitatively.
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To calculate the portfolio expected return and standard deviation we need to consider the weights of each fund and their respective expected returns and standard deviations Given Fund A Expected Retur... View the full answer
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