The Knowles/Armitage (KA) group at Merrill Lynch advises clients on how to create a diversified investment portfolio. One of the investment alternatives they make available to clients is the All World Fund composed of global stocks with good dividend yields. One of their clients is interested in a portfolio consisting of investment in the All World Fund and a treasury bond fund. The expected percent return of an investment in the All World Fund is 7.80% with a standard deviation of 18.90%. The expected percent return of an investment in a treasury bond fund is 5.50% and the standard deviation is 4.60%. The covariance of an investment in the All World Fund with an investment in a treasury bond fund is −12.4. (Round your answers for standard deviation to two decimal places.) (a) Which of the funds would be considered the more risky? Why? Neither fund is risky since both are equivalent. A treasury bond fund would be considered the more risky because it has a smaller standard deviation. The All World Fund would be considered the more risky because it has a larger expected percent return. A treasury bond fund would be considered the more risky because it has a smaller expected percent return. The All World Fund would be considered the more risky because it has a larger standard deviation. v (b) If KA recommends that the client invest 75% in the All World Fund and 25% in the treasury bond fund, what is the expected percent return and standard deviation for such a portfolio? expected percent - return standard deviation - What would be the expected return and standard deviation, in dollars, for a client investing $40,000 in such a portfolio? expected return $ - standard deviation $ - (c) If KA recommends that the client invest 25% in the All World Fund and 75% in the treasury bond fund, what is the expected return and standard deviation for such a portfolio? expected percent - return standard deviation - What would be the expected return and standard deviation, in dollars, for a client investing $40,000 in such a portfolio? expected return $ - standard deviation $ - (d) Which of the portfolios in parts (b) and (c) would you recommend for an aggressive investor? Which would you recommend for a conservative investor? Why? An aggressive investor should use the portfolio in ---Select--- part (b) or part (c) because it has a ---Select--- smaller or larger return. A conservative investor should elect the portfolio in ---Select--- part (b) or part (c) because it has a ---Select--- smaller or larger standard deviation (and because of this, is less risky).

The Knowles/Armitage (KA) group at Merrill Lynch advises clients on how to create a diversified investment portfolio. One of the investment alternatives they make available to clients is the All World Fund composed of global stocks with good dividend yields. One of their clients is interested in a portfolio consisting of investment in the All World Fund and a treasury bond fund. The expected percent return of an investment in the All World Fund is 7.80% with a standard deviation of 18.90%. The expected percent return of an investment in a treasury bond fund is 5.50% and the standard deviation is 4.60%. The covariance of an investment in the All World Fund with an investment in a treasury bond fund is −12.4. (Round your answers for standard deviation to two decimal places.) (a) Which of the funds would be considered the more risky? Why? Neither fund is risky since both are equivalent. A treasury bond fund would be considered the more risky because it has a smaller standard deviation. The All World Fund would be considered the more risky because it has a larger expected percent return. A treasury bond fund would be considered the more risky because it has a smaller expected percent return. The All World Fund would be considered the more risky because it has a larger standard deviation. v (b) If KA recommends that the client invest 75% in the All World Fund and 25% in the treasury bond fund, what is the expected percent return and standard deviation for such a portfolio? expected percent - return standard deviation - What would be the expected return and standard deviation, in dollars, for a client investing $40,000 in such a portfolio? expected return $ - standard deviation $ - (c) If KA recommends that the client invest 25% in the All World Fund and 75% in the treasury bond fund, what is the expected return and standard deviation for such a portfolio? expected percent - return standard deviation - What would be the expected return and standard deviation, in dollars, for a client investing $40,000 in such a portfolio? expected return $ - standard deviation $ - (d) Which of the portfolios in parts (b) and (c) would you recommend for an aggressive investor? Which would you recommend for a conservative investor? Why? An aggressive investor should use the portfolio in ---Select--- part (b) or part (c) because it has a ---Select--- smaller or larger return. A conservative investor should elect the portfolio in ---Select--- part (b) or part (c) because it has a ---Select--- smaller or larger standard deviation (and because of this, is less risky).

MATLAB: An Introduction with Applications

6th Edition

ISBN:9781119256830

Author:Amos Gilat

Publisher:Amos Gilat

Chapter1: Starting With Matlab

Section: Chapter Questions

Problem 1P

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(a)

Which of the funds would be considered the more risky? Why?

Neither fund is risky since both are equivalent.

A treasury bond fund would be considered the more risky because it has a smaller standard deviation.

The All World Fund would be considered the more risky because it has a larger expected percent return.

A treasury bond fund would be considered the more risky because it has a smaller expected percent return.

The All World Fund would be considered the more risky because it has a larger standard deviation. v

(b)

If KA recommends that the client invest 75% in the All World Fund and 25% in the treasury bond fund, what is the expected percent return and standard deviation for such a portfolio?

expected percent -

return standard deviation -

What would be the expected return and standard deviation, in dollars, for a client investing $40,000 in such a portfolio?

expected return $ -

standard deviation $ -

(c)

If KA recommends that the client invest 25% in the All World Fund and 75% in the treasury bond fund, what is the expected return and standard deviation for such a portfolio?

expected percent -

return standard deviation -

What would be the expected return and standard deviation, in dollars, for a client investing $40,000 in such a portfolio?

expected return $ -

standard deviation $ -

(d)

Which of the portfolios in parts (b) and (c) would you recommend for an aggressive investor? Which would you recommend for a conservative investor? Why?

An aggressive investor should use the portfolio in ---Select--- part (b) or part (c) because it has a ---Select--- smaller or larger return. A conservative investor should elect the portfolio in ---Select--- part (b) or part (c) because it has a ---Select--- smaller or larger standard deviation (and because of this, is less risky).

Definition Definition Measure of how two random variables change together. Covariance indicates the joint variability or the directional relationship between two variables. When two variables change in the same direction (i.e., if they either increase or decrease together), they have a positive covariance. When the change is in opposite directions (i.e., if one increases and the other decreases), the two variables have a a negative covariance.

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