1answer.
Ask question
Login Signup
Ask question
All categories
  • English
  • Mathematics
  • Social Studies
  • Business
  • History
  • Health
  • Geography
  • Biology
  • Physics
  • Chemistry
  • Computers and Technology
  • Arts
  • World Languages
  • Spanish
  • French
  • German
  • Advanced Placement (AP)
  • SAT
  • Medicine
  • Law
  • Engineering
notka56 [123]
3 years ago
6

A pension fund manager is considering three mutual funds. The first is a stock fund, the second is a long-term government and co

rporate bond fund, and the third is a T-bill money market fund that yields a rate of 4.4%. The probability distribution of the risky funds is as follows:
Expected Return Standard Deviation
Stock fund (S) 14% 34%
Bond fund (B) 5 28
The correlation between the fund returns is 0.14.
Solve numerically for the proportions of each asset and for the expected return and standard deviation of the optimal risky portfolio. (Do not round intermediate calculations and round your final answers to 2 decimal places. Omit the "%" sign in your response.)
Portfolio invested in the stock %
Portfolio invested in the bond %
Expected return %
Standard deviation %
Business
1 answer:
Leviafan [203]3 years ago
4 0

Answer:

The answer to this question can be defined as follows:

Explanation:

The risk-free rate of T-bill is (r f), which is 4.4% = 0.044. The fund for stocks (S)  An expected 14% = 0.14 return and the value of the standard deviation is 34% = 0.34. The  Announcement fund of (B) and  the estimated 5% = 0.05 return, with a standard deviation 28% = 0.28 .  

following are the formula for the equation is:

E(R)=E(r)-r_f \ \ \ \ \ \ \ \ \ \ \ \ where, \\\\E(R)= \ Expected \ return\\E (r) = \ Expected \ return \ on \ stock \\(r_f)= \ Risk-free \ rate

Using the formula to measure the projected return for bond and stock fund:

E(R_s)=E(r_s)-r_f\\

          =0.14-0.044\\ =0.096\\

E(R_B)=E(r_B)-r_f

           = 0.05-0.044\\= 0.006

Measure mass with optimized risk for stock index fund (S) and Bond Fund (B),  Introduce to investment as follows:

W_s=\frac{E(R_s)\sigma_{B}^2-E(R_B) Cov(r_s,r_s)}{E(R_s)\sigma_B^2+E(R_B)\sigma_s^2-[E(R_s)+E(R_s)]Cov(r_s,r_s)}

W_s = \ Stock \ Fund \ weight \\ W_B = \ Bond \ Fund \ weight \\

\sigma_s= \ de fault \ stock \ found \ variance\\

\sigma_{B}= \ Bond \ Fund \ standard \ deviation \\r_s = \ Stock \ fund \ planned \ return \\r_B = \ Bond \ fund's \ projected \ return\\ Cov(r_s, r_B)= \ Pension \ and \ bond \ fund \ covariance\\

Measure the portfolio and bond fund covariance according to:

Bond and equity fund covariance = \ Bond \ and \ stocks  \ fund \ correlation  \times \sigma_s \times \sigma_B  

= 0.14  \times 0.34 \times 0.28\\= 0.013328\\

Measure the mass of the stock and bond fund as follows:

W_s=\frac{E(R_s)\sigma_{B}^2-E(R_B) Cov(r_s,r_s)}{E(R_s)\sigma_B^2+E(R_B)\sigma_s^2-[E(R_s)+E(R_s)]Cov(r_s,r_s)}

     =\frac{0.096 \times 0.28^2-0.006\times 0.013328}{0.096 \times 0.28^2+0.006\times 0.34^2-[0.096+0.006]\times 0.013328}

     =\frac{0.0075264-0.000079968}{0.0075264+0.0006936-0.001359456}\\\\=\frac{0.007446432}{0.006860544}\\\\=1.085\\

W_B=1-W_s\\\\

      =1-1.085\\\\=-0.85

The correspondence(p) here is 0.14. Calculate the norm for the maximum risky as follows:

\ deviation \ of \ portfolio \ =\sqrt{(W_s)^2 (\sigma_s)^2+(W_B)^2 (\sigma_B)^2+ 2(W_s)(W_B)(\sigma_s) (\sigma_B) (P)}

 =\sqrt{(1.05)^2 (0.34)^2+(-0.0854)^2 (0.28)^2+ 2(1.0854)(-0.0854)(0.34) (0.28) (0.14)}\\=\sqrt{0.13428852416704}\\=0.366453986\\=36.65%

The standard deviation for the optimal risky portfolio is 36.65%

\ Expected \ return \ portfolio = (\ mass \ of \ stock \ found \times \ expected \ return \ on\  stock)+ ( mass \ of \ bond\ found \times \ expected \ return \ on\  bond)=(1.085\times 0.14)+(-0.0854 \times 0.05)\\= 0.151956-0.00427\\=0.1477\\=14.77%\\

The optimal risk portfolio is 14.77%

You might be interested in
Butler Automotive developed a new diagnostic testing procedure that is expected to increase sales by $10,000 per month. As more
Bas_tet [7]

Answer:

A

Explanation:

Working capital are the components of the current assets that represents liquidity , readily available for day to day business operation.

It is made up of cash , receivable , payable , inventory balance .

Due to the new development in the business of Butler automotive , there is an upsurge in the demand for oil which has led to the increase in the oil inventory to the tune of $5,000

This means that the required working capital of Butler also has to increase to meet up with the demand.

6 0
3 years ago
Lewis Co. sold merchandise to AdCo for $48,000 and received $48,000 for that sale one month later. One week prior to receiving p
miv72 [106K]

Answer:

$45,000 revenue to be recorded

Explanation:

If the seller is purchasing the goods and service from customer at fair value of those goods, so will account for that purchase as separate transaction.

Computing overpayment as:

Overpayment = Amount paid - Fair value

where

Amount paid is $10,000

Fair value is $7,000

So,

Overpayment - $10,000 - $7,000

Overpayment = $3,000

Now,

Computing the Net revenue which should be recorded as:

Net revenue = Sale amount - Overpayment

where

Sale amount is $48,000

Overpayment is $3,000

So,

Net revenue = $48,000 - $3,000

Net revenue = $45,000

8 0
3 years ago
A state may not discriminate against citizens of other states, and each must give "full faith and credit" to the official acts o
julsineya [31]
<span>The answer is "states". In the United States Constitution, Article Four defines the relationship between states, and between the states and the federal government. This "full faith and credit" includes the public acts, records and court proceedings of other states. States must recognize and respect decisions of each state's courts.</span>
8 0
3 years ago
NeNe is an accountant and a U.S. citizen who has accepted a permanent position in Madrid, Spain, for a Spanish financial service
s2008m [1.1K]

Question options:

a) NeNe can exclude all of the housing payment because she worked more than 330 days overseas

b) 16,128

c) 23,872

d) 14,112

e) None of her salary can be excluded from gross income

Answer:

a) NeNe can exclude all of the housing payment because she worked more than 330 days overseas

Explanation:

US citizens working and living abroad would still have to remit taxes to the US, albeit with exclusions.

Under US tax law, IRS states that US citizens may deduct/exclude the value of meal and lodging expenses granted to them by the employer. Under the foreign housing exclusion, Nene qualifies for the benefits of housing exclusion because she has a foreign earned income and has lived at least 330 days within a period of 12 consecutive months in the foreign country.

4 0
3 years ago
Which of the following ways of investing/saving is the most liquid?
charle [14.2K]
Savings accounts is the most liquid 
5 0
3 years ago
Other questions:
  • Kei, a senior marketing manager of a pizzeria in North Florida, is currently researching electronic collections of consumer info
    13·1 answer
  • Your company currently has par, coupon bonds with 10 years to maturity and a price of . If you want to issue new 10-year coupon
    13·1 answer
  • Smart Phone Inc. manufactures its custom phone cases for its awesome phones and tablets. It also manufactures its custom touch s
    14·1 answer
  • A project's payback period is the ______. estimated length of the capital investment project from the initial cash outflow to th
    10·1 answer
  • A population gathers plants and animals for survival. They need at least 360 units of​ energy, 300 units of​ protein, and 8 hide
    13·1 answer
  • DeVonda owns a music store. One night, vandals broke her store's front window. DeVonda called the police, and the police investi
    14·1 answer
  • Which of the following is a true statement about the call option? It allows investors to purchase stocks at a going rate for a g
    10·2 answers
  • The unemployment rate _________.
    5·1 answer
  • Answer correctly and u will receive brainliest and 15 pts
    14·2 answers
  • 5)True or False: Offering sales discounts on credit sales can benefit a seller by decreasing the delay in
    15·1 answer
Add answer
Login
Not registered? Fast signup
Signup
Login Signup
Ask question!