Question

The ISR Equity Fund has an expected return E[r] of 17.970% and a standard deviation σ...

The ISR Equity Fund has an expected return E[r] of 17.970% and a standard deviation σ of 21%. The BND Bond Fund has and expected return E[r] of 2.150% and a standard deviation σ of 9%. The correlation coefficient (ρ) is 0.74. A portfolio comprised of 83% ISR and 17% BND would have an expected return of % and a standard deviation of %

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Answer #1

Return of ISR Equity Fund(RA) = 17.970%

Weight of ISR Equity Fund(WA) = 83%

Return of BND Bond (RB) = 2.150%

Weight of BND Bond(WB) = 17%

a). Expected return on Portfolio = WA*RA + WB*RB

= (0.83)(17.970%) + (0.17)(2.150%)

= 14.9151% + 0.3655%

= 15.281%

b). Calculating Standard deviation of Portfolio:-

Standard deviation = 18.59%

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