Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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Transcribed Image Text:Percival Hygiene has $10 million invested in long-term corporate bonds. This bond portfolio's expected annual rate of return is 24%, and the annual standard deviation is 13%.
Amanda Reckonwith, Percival's financial adviser, recommends that Percival consider investing in an index fund that closely tracks the Standard & Poor's 500 Index.
The index has an expected return of 20%, and its standard deviation is 18%.
Suppose Percival puts all his money in a combination of the index fund and Treasury bills.
The Treasury bill yield is 6%.
Can he thereby improve his expected rate of return without changing the risk of his portfolio?
Multiple Choice
Yes: if Percival puts all his money in a combination of the index fund and Treasury, it will produce a return = 16%>13%
Yes: if Percival puts all his money in a combination of the index fund and Treasury, it will produce a return = 24%>13%
Yes: if Percival puts all his money in a combination of the index fund and Treasury, it will produce a return = 20%>18%
No: if Percival puts all his money in a combination of the index fund and Treasury, it will produce a return = 20%<24%
No: if Percival puts all his money in a combination of the index fund and Treasury, it will produce a return = 16%<24%
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