Reference no: EM132638480

Consider historical data showing that the average annual rate of return on the S&P portfolio over the past 90 years has averaged roughly 8% more than the Treasury bill return and that the S&P 500 standard deviation has been about 20% per year. Assume these values are representative of investors' expectations for future performance and that the current T-bill rate is 5%.

a) Calculate the expected return of portfolios invested in T-bills and the S&P 500 index with weights shown in the table below.

b) Calculate the standard deviation of portfolios invested in T-bills and the S&P 500 index with weights shown in the table below.

Weight_Bills
Weight_Index
0 - 1
0.2 - 0.8
0.6 - 0.4
0.8 - 0.2
1 - 0