Question

You have $370,000 invested in a well-diversified portfolio. You inherit a house that is presently worth...

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 %  

Homework Answers

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
You have $500,000 invested in a well-diversified portfolio. You inherit a house that is presently worth...
You have $500,000 invested in a well-diversified portfolio. You inherit a house that is presently worth $150,000. Consider the summary measures in the following table: Investment Expected Return Standard Deviation Old portfolio 7 % 10 % House 19 % 21 % The correlation coefficient between your portfolio and the house is 0.34. a. What is the expected return and the standard deviation for your portfolio comprising your old portfolio and the house? (Do not round intermediate calculations. Round your final...
10-3 You have a portfolio with a beta of 1.37. What will be the new portfolio...
10-3 You have a portfolio with a beta of 1.37. What will be the new portfolio beta if you keep 93 percent of your money in the old portfolio and 7 percent in a stock with a beta of 0.97? (Do not round intermediate calculations. Round your final answer to 2 decimal places.) New Portfolio Beta _____________ 10-4 Suppose Universal Forest’s current stock price is $66.00 and it is likely to pay a $0.39 dividend next year. Since analysts estimate...
Assume that you manage a risky portfolio with an expected rate of return of 16% and...
Assume that you manage a risky portfolio with an expected rate of return of 16% and a standard deviation of 32%. The T-bill rate is 6%. Your risky portfolio includes the following investments in the given proportions: Stock A 28 % Stock B 34 Stock C 38 Your client decides to invest in your risky portfolio a proportion (y) of his total investment budget with the remainder in a T-bill money market fund so that his overall portfolio will have...
You manage a risky portfolio with an expected rate of return of 20% and a standard...
You manage a risky portfolio with an expected rate of return of 20% and a standard deviation of 36%. The T-bill rate is 5%. Your client chooses to invest 60% of a portfolio in your fund and 40% in an essentially risk-free money market fund. What are the expected return and standard deviation of the rate of return on his portfolio? (Do not round intermediate calculations. Round "Standard deviation" to 2 decimal places.)
Assume that you manage a risky portfolio with an expected rate of return of 20% and...
Assume that you manage a risky portfolio with an expected rate of return of 20% and a standard deviation of 44%. The T-bill rate is 4%. Your risky portfolio includes the following investments in the given proportions: Stock A 28 % Stock B 37 % Stock C 35 % Your client decides to invest in your risky portfolio a proportion (y) of his total investment budget with the remainder in a T-bill money market fund so that his overall portfolio...
You manage a risky portfolio with an expected rate of return of 18% and a standard...
You manage a risky portfolio with an expected rate of return of 18% and a standard deviation of 28%. The T-bill rate is 8%. Your client choose s to invest 70% of a portfolio in your fund and 30% in an essentially risk-free money market fund. What is the expected return and standard deviation of the rate of return on his portfolio? Do not round intermediate calculations. Round "standard deviation to 1 decimal place. Rate of Return Expected return _______?_%___...
You estimate that a passive portfolio, for example, one invested in a risky portfolio that mimics...
You estimate that a passive portfolio, for example, one invested in a risky portfolio that mimics the S&P 500 stock index, offers an expected rate of return of 13% with a standard deviation of 24%. You manage an active portfolio with expected return 18% and standard deviation 29%. The risk-free rate is 5%. Your client's degree of risk aversion is A = 2.5. a. If he chose to invest in the passive portfolio, what proportion, y, would he select? (Do...
You have been provided the following data about the securities of three firms, the market portfolio,...
You have been provided the following data about the securities of three firms, the market portfolio, and the risk-free asset:    a. Fill in the missing values in the table. (Leave no cells blank - be certain to enter 0 wherever required. Do not round intermediate calculations and round your answers to 2 decimal places. (e.g., 32.16))    Security Expected Return Standard Deviation Correlation* Beta   Firm A .100 .41    .86   Firm B .150    .60 1.41   Firm C .170...
Assume that you manage a risky portfolio with an expected rate of return of 15% and...
Assume that you manage a risky portfolio with an expected rate of return of 15% and a standard deviation of 40%. The T-bill rate is 5%. Your risky portfolio includes the following investments in the given proportions: Stock A 24 % Stock B 33 % Stock C 43 % Your client decides to invest in your risky portfolio a proportion (y) of his total investment budget with the remainder in a T-bill money market fund so that his overall portfolio...
Assume that you manage a risky portfolio with an expected rate of return of 12% and...
Assume that you manage a risky portfolio with an expected rate of return of 12% and a standard deviation of 47%. The T-bill rate is 4%. Your risky portfolio includes the following investments in the given proportions: Stock A 31 % Stock B 31 % Stock C 38 % Your client decides to invest in your risky portfolio a proportion (y) of his total investment budget with the remainder in a T-bill money market fund so that his overall portfolio...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT