You have $370,000 invested in a well-diversified portfolio. You inherit a house that is presently worth $200,000. Consider the summary measures in the following table: |
Investment | Expected Return | Standard Deviation |
Old portfolio | 6% | 16% |
House | 16% | 29% |
The correlation coefficient between your portfolio and the house is 0.41. |
a. |
What is the expected return and the standard deviation of your portfolio comprising your old portfolio and the house? (Do not round intermediate calculations. Round your final answers to 2 decimal places.) |
Expected return | % |
Standard deviation | % |
b. |
Suppose you decide to sell the house and use the proceeds of $200,000 to buy risk-free T-bills that promise a 12% rate of return. Calculate the expected return and the standard deviation of the resulting portfolio. (Hint: Note that the correlation between any asset and the risk-free T-bills is zero.) (Do not round intermediate calculations. Round your final answers to 2 decimal places.) |
Expected return | % |
Standard deviation | % |
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