You have a portfolio with three assets: equities, corporate bonds and government bonds. The information for...
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You have a portfolio with three assets: equities, corporate bonds and government bonds. The information for the weight, expected return E(R), standard deviation (S.D.) of the asset and correlation between two assets (e.g. correlation(equity. corporate bond) = 0.5) is listed below. Assets Weight E(R) S.D. Correlation Correlation Equities Corporate bonds 1 0.5 Equities 50% Corporate 30% bonds Government 20% bonds 1) II) 7% 15% 5% 10% 2% 5% 0.2 Calculate the expected return for your portfolio. 1 0.9 Calculate the standard deviation of returns for your portfolio. Correlation Government bonds (10 marks) (20 marks) III) According to your calculations in I) and II), is your portfolio better than investing 100% in corporate bonds? (10 marks) IV) Calculate the annual Value at Risk (VaR) in your portfolio at 5% and 1% of possible outcomes (in terms of pounds sterling) if you invest £100 million in the above portfolio? (10 marks) You have a portfolio with three assets: equities, corporate bonds and government bonds. The information for the weight, expected return E(R), standard deviation (S.D.) of the asset and correlation between two assets (e.g. correlation(equity. corporate bond) = 0.5) is listed below. Assets Weight E(R) S.D. Correlation Correlation Equities Corporate bonds 1 0.5 Equities 50% Corporate 30% bonds Government 20% bonds 1) II) 7% 15% 5% 10% 2% 5% 0.2 Calculate the expected return for your portfolio. 1 0.9 Calculate the standard deviation of returns for your portfolio. Correlation Government bonds (10 marks) (20 marks) III) According to your calculations in I) and II), is your portfolio better than investing 100% in corporate bonds? (10 marks) IV) Calculate the annual Value at Risk (VaR) in your portfolio at 5% and 1% of possible outcomes (in terms of pounds sterling) if you invest £100 million in the above portfolio? (10 marks)
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