puting the standard deviation for an individual​ investment)  James Fromholtz is considering whether to invest in a newly formed investment fund. The​ fund's investment objective is to acquire home mortgage securities at what it hopes will be bargain prices. The fund sponsor has suggested to James that the​ fund's performance will hinge on how the national economy performs in the coming year. ​ Specifically, he suggested the following possible​ outcomes:   LOADING... .   a.  Based on these potential​ outcomes, what is your estimate of the expected rate of return from this investment​ opportunity? b.  Calculate the standard deviation in the anticipated returns found in part a. c.  Would you be interested in making such an​ investment? Note that you lose all your money in one year if the economy collapses into the worst state or

Benefits of diversification. Sally Rogers has decided to invest her wealth equally across the following three assets: a. What are her expected returns and the risk from her investment in the three assets? How do they compare with investing in asset M alone? Hint Find the standard deviations of asset M and of the portfolio equally invested in assets M, N, and O. b. Could Sally reduce her total risk even more by using assets M and N only, assets M and O only, or assets N and O only? Use a 50/50 split between the asset pairs, and find the standard deviation of each asset pair. a. What is the expected return of investir 8.40% (Round to two decimal places.) What is the expected return of investing % (Round to two decimal places.) Data table (Click on the following icon in order to copy its contents into a spreadsheet.) States Probability 35% Asset M Return 10% Boom Normal 54% 7% Recession 11% -2% Asset N Return 21% 12% 1% Asset O Return - 2% 7% 10% X

Unit 8-1

The project for this semester is about putting a portfolio together. The portfolio will be based on: Asset allocation Beta/Standard Deviation Valuations Return To make this project about performance only would encourage gambling in the stock and bond markets and that is not what we are here to do. We are here to make fundamentally sound investments with the tools we have in this course. Therefore, please put a portfolio together of any investments you would like using different types of mutual funds; large cap, mid cap and small cap, growth and/or value, international, domestic, emerging markets. Bonds; investment grade, high yield or emerging market. I recommend mutual funds as the risk analytics are easier to find. Any asset allocation you want and explain why you like the allocation. Illustrate a 3, 5, 7 and 10 year performance of the portfolio with the beta and standard deviation. We are looking at risk adjusted returns. Clearly making 10% is better than making 8%…