Reference no: EM131011690
Investments in two funds
Linda invests her money in a portfolio that consists of 70% Fidelity 500 Index Fund and 30% Fidelity Diversi?ed International Fund. Suppose that in the long run the annual real return X on the 500 Index Fund has mean 9% and standard deviation 19%, the annual real return Y on the Diversi?ed International Fund has mean 11% and standard deviation 17%, and the correlation between X and Y is 0.6.
(a) The return on Linda's portfolio is R = 0.7X + 0.3Y . What are the mean and standard deviation of R?
(b) The distribution of returns is typically roughly symmetric but with more extreme high and low observations than a Normal distribution. The average return over a number of years, however, is close to Normal. If Linda holds her portfolio for 20 years, what is the approximate probability that her average return is less than 5%?
(c) The calculation you just made is not overly helpful, because Linda isn't really concerned about the mean return R. To see why, suppose that her portfolio returns 12% this year and 6% next year. The mean return for the two years is 9%. If Linda starts with $1000, how much does she have at the end of the ?rst year? At the end of the second year? How does this amount compare with what she would have if both years had the mean return, 9%? Over 20 years, there may be a large difference between the ordinary meanR and the geometric mean, which re?ects the fact that returns in successive years multiply rather than add.
|
Question regarding the carpooling
: Although cities encourage carpooling to reduce traf?c congestion, most vehicles carry only one person. For example, 70% of vehicles on the roads in the Minneapolis-St. Paul metropolitan area are occupied by just the driver.
|
|
Time value of money-relationship in discounting-compounding
: What is the relationship between discounting and compounding? What is the relationship between the present-value factor and the annuity present-value factor? What is an annuity due? How does this differ from an ordinary annuity? What is the present v..
|
|
Does the form contain information on power of attorney
: Does the form contain information on power of attorney? Does the form contain information on the living will? Should extraordinary care continue, or are comfort measure only the best option
|
|
Examine an art piece of futurism in its content and form
: Think about the idea of success and failure: How doesAntigone examine what determines failure and success. What about Marx? Can one control one's "fate", if so, to what extent, if not, why?
|
|
Investments in two funds
: Linda invests her money in a portfolio that consists of 70% Fidelity 500 Index Fund and 30% Fidelity Diversi?ed International Fund.
|
|
Discuss the meaning of the slope and y intercept
: For each linear model, discuss the meaning of the slope and y intercept. Using your most preferred linear model, predict sales for the next four weeks. Provide backup computation.
|
|
Calculate the NPV of the project
: Sanders Enterprises, Inc., has been considering the purchase of a new manufacturing facility for $288,000. The facility is to be fully depreciated on a straight-line basis over seven years. It is expected to have no resale value after the seven years..
|
|
How do flotation costs affect the cost of capital
: How do flotation costs affect the cost of capital? Are these costs about the same for each of the three capital components? How do they change as the firm raises larger and larger amounts of capital, and how do flotation costs affect the way a compan..
|
|
Differences between criminologists and criminalists
: Explain the differences between criminologists and criminalists and their respective areas of study. How are the criminologists and criminalists used in the public sector (working within a governmental body)? How are they used in the private secto..
|