Solution-Correlation of the returns on the corporate bond

Correlation of the returns on the corporate bond fund

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Reference no: EM133122686

You have $10,000 to invest in a combination of a risk-free asset (), an S&P 500 index fund (S), and a corporate bond fund (B) with the following properties:

Asset	Expected return	Risk
Risk-free asset	0.05	0.00
S&P 500 index fund	0.12	0.19
Corporate bond fund	0.055	0.10

The correlation of the returns on the corporate bond fund and the stock index fund is equal to 0.30.

Assume that the tangency portfolio's return is equal to 9.8%. What dollar amounts should you invest in each of the three asset classes (F, S, and B) in order to achieve a standard deviation of 8.75% for the highest possible expected return?

Group of answer choices

$6615.40 in stocks, $3384.60 in risk-free rate
$2120.97 in stocks, $4145.56 in bonds, $3733.46 in risk-free rate
$4145.56 in risk-free rate, $2120.97 stocks, $3733.46 in bonds
$4145.56 in stocks, $2120.97 in bonds, $3733.46 in risk-free rate
$3384.60 in bonds, $6615.40 in the risk-free rate

Reference no: EM133122686

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Correlation of the returns on the corporate bond fund

Reference no: EM133122686

Reference no: EM133122686

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