Consider a stock fund and a bond fund with the following characteristics and a correlation of 0.2. A T-Bill money market fund yields 8%. You are allowed to use all three funds to form an optimal portfolio. E ( R ) Sigma Stock Fund (S) 20% 30% Bond Fund (B) 12% 10% What would be the portfolio P that consists of the stock fund and the bond fund and that has the highest Sharpe ratio What are the expected return and risk of the optimal risky portfolio P What is the Sharpe ratio of the best feasible capital allocation line (CAL)? Consider an investor with a risk aversion parameter A=10. What is her optimal allocation to the risky portfolio, P
Consider a stock fund and a bond fund with the following characteristics and a correlation of 0.2. A T-Bill money market fund yields 8%. You are allowed to use all three funds to form an optimal portfolio. E ( R ) Sigma Stock Fund (S) 20% 30% Bond Fund (B) 12% 10% What would be the portfolio P that consists of the stock fund and the bond fund and that has the highest Sharpe ratio What are the expected return and risk of the optimal risky portfolio P What is the Sharpe ratio of the best feasible capital allocation line (CAL)? Consider an investor with a risk aversion parameter A=10. What is her optimal allocation to the risky portfolio, P
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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- Consider a stock fund and a bond fund with the following characteristics and a correlation of 0.2. A T-Bill
money market fund yields 8%. You are allowed to use all three funds to form an optimal portfolio.
|
|
E ( R ) |
Sigma |
|
Stock Fund (S) |
20% |
30% |
|
Bond Fund (B) |
12% |
10% |
- What would be the portfolio P that consists of the stock fund and the bond fund and that has the highest Sharpe ratio
- What are the expected return and risk of the optimal risky portfolio P
- What is the Sharpe ratio of the best feasible capital allocation line (CAL)?
- Consider an investor with a risk aversion parameter A=10. What is her optimal allocation to the risky portfolio, P
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