8.
1.The parameters of the opportunity set are:
E(rS) = 15%, E(rB) = 9%, sS = 32%, sB = 23%, r = 0.15, rf = 5.5%
From the standard recreations and the correlational statistics coefficient we generate the covariance matrix [note that Cov(rS, rB) = rsSsB]:
BondsStocks
Bonds529.0110.4
Stocks110.41024.0
The minimum-variance portfolio proportions are:
wMin(B) = 0.6858
The inculpate and standard deviation of the minimum variance portfolio are:
E(rMin) = (0.3142 × 15%) + (0.6858 × 9%) = 10.89%
= [(0.31422 × 1024) + (0.68582 × 529) + (2 × 0.3142 × 0.6858 × 110.4)]1/2
= 19.94%
% in stocks% in bondsExp. returnStd dev.
00.00100.009.0023.00
20.0080.0010.2020.37
31.4268.5810.8919.94 tokenish variance
40.0060.0011.4020.18
60.0040.0012.6022.50
64.66 35.3412.8823.34Tangency portfolio
80.0020.0013.8026.68
100.0000.0015.0032.00
9.
1.
The graph approximates the points:
E(r)?
Minimum Variance Portfolio10.89%19.94%
Tangency Portfolio12.88%23.34%
10.
The reward-to-variability ratio of the optimal CAL (using the tangency portfolio) is:
11.
a.The par for the CAL using the tangency portfolio is:
aspect E(rC) equal to 12% yields a standard deviation of: 20.56%
b.
The mean of the complete portfolio as a function of the proportion invested in the risky portfolio (y) is:
E(rC) = (l - y)rf + yE(rP) = rf + y[E(rP) - rf] = 5.5 + y(12.88 - 5.5)
Setting E(rC) = 12% ==> y = 0.8808 (88.08% in the risky portfolio)
1 - y = 0.1192 (11.92% in T-bills)
From the composition of the optimal risky portfolio:
Proportion of stocks in complete portfolio = 0.8808 × 0.6466 = 0.5695
Proportion of bonds in complete portfolio = 0.8808 × 0.3534 = 0.3113
12.
1.Using alone the stock and bond funds to achieve a mean of 12% we solve:
12 = 15wS + 9(1 - wS) = 9 + 6wS Þ wS = 0.5
Investing 50% in stocks and 50% in bonds yields a mean of 12% and standard deviation of:
sP = [(0.502 × 1024)...If you want to get a just essay, order it on our website: Ordercustompaper.com
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