You have a choice of investing $1000 in following two risky mutual funds. Bond fund (1)...

 

 

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You have a choice of investing $1000 in following two risky mutual funds. Bond fund (1) Stock fund (2) Expected Return Std. Deviation 10% 10% 20% 20% Correlation (stock fund, bond fund) = -1 1. If you choose to invest in the minimum-risk portfolio composed from the two risky funds, how much is invested in the Bond Fund? Stock Fund? 2. What is the expected return and standard deviation of the minimum risk portfolio? 3. Using the principle of dominance should you consider investing (Yes or No) in the following portfolios composed from the two risky funds: P (1, 0)? P (.85, .15)? P (.15, .85)? P (0, 1)? (No calculations needed here) If you can also invest in the risk free rate at 4 percent, then 4. What is your expected return if you invest $400 in the risk free rate and $600 in the minimum risk portfolio? 5. Suppose you wish to earn a return of 8 percent, how much must be invested in the risk free rate and the minimum risk portfolio? 6. Given your answer in #5 above, how much is invested in the risk free rate, Bond fund (#1) and the Stock fund (#2)? You have a choice of investing $1000 in following two risky mutual funds. Bond fund (1) Stock fund (2) Expected Return Std. Deviation 10% 10% 20% 20% Correlation (stock fund, bond fund) = -1 1. If you choose to invest in the minimum-risk portfolio composed from the two risky funds, how much is invested in the Bond Fund? Stock Fund? 2. What is the expected return and standard deviation of the minimum risk portfolio? 3. Using the principle of dominance should you consider investing (Yes or No) in the following portfolios composed from the two risky funds: P (1, 0)? P (.85, .15)? P (.15, .85)? P (0, 1)? (No calculations needed here) If you can also invest in the risk free rate at 4 percent, then 4. What is your expected return if you invest $400 in the risk free rate and $600 in the minimum risk portfolio? 5. Suppose you wish to earn a return of 8 percent, how much must be invested in the risk free rate and the minimum risk portfolio? 6. Given your answer in #5 above, how much is invested in the risk free rate, Bond fund (#1) and the Stock fund (#2)?