What is the expected return and standard deviation

Assignment Help Finance Basics
Reference no: EM133430201

Question: You advise a local pension fund that is considering investments in a combination of a risky stock portfolio return today with E[rP] = 10% and σP = 18% and today's risk-free asset Rf = 3.0%. These returns decrease with the bear markets due to inflation containment actions by FED Reserve to a Rf interest rate of 5.0% and the market Rp falls back to the longer-term low expectation portfolio premium of 5.0%. Remember to analyze the changed returns/expectations based on FED actions and possible recession - today and in the future After careful discussions / surveys with your clients you determine that their risk aversion is A=6. CHOSE ONE PROBLEM

1. Portfolio risk and return: Your clients have a traditional balanced portfolio -- currently invest y=0.6 in the risky portfolio and 1-y=0.4 in the risk-free asset / fixed income. What is the expected return and standard deviation of their portfolio (the complete portfolio)? Today and in future with the higher Rf interests rates?

Note changes in Rf and risk premium and estimated portfolio returns? How does the Sharpe ratio of your combined portfolio (the y choice) change with the new combined return due to Rf increase and Rp decrease with the same long-run SD. Compare Sharpe ratios based on expected combine returns with future Rf and Rp. What does it tell you about these investment allocations? Do these calculations and estimates make sense, what are your concerns?

Reference no: EM133430201

Questions Cloud

What is the equivalent cash price of the equipment : What is the equivalent cash price of the equipment and How much will be owed at the end of two years
What is the 6-month forward exchange rate : In the spot exchange market, 1 yen equals $0.009. If interest rate parity holds, what is the 6-month forward exchange rate? Do not round intermediate
Define pluralism-assimilation-segregation and genocide : Define pluralism, assimilation, segregation and genocide.
Does the essay meet the requirements for a persuasive essay : Are there punctuational or grammar errors? Does the essay meet the requirements for a persuasive essay? Is everything in order?
What is the expected return and standard deviation : What is the expected return and standard deviation of their portfolio (the complete portfolio)? Today and in future with the higher Rf interests rates
What is the projects mirr : WACC is 13%. What is the projects MIRR? Do not round intermediate calculations. Round your answer to two decimal places
What can still lead to a run on institutions : Most financial crises are no longer characterized by classical bank runs (depositors lining up to withdraw money) due to deposit insurance. What can still lead
Would the better investment project : which has the lowest NPV and PI but the best payback period and IRR. project #3 does not excel in any of the tools analyzed. Would #1 or #2 be the better
Evolution of american social class system : Evolution of the American social class system, particularly in comparison to the English, Appiah notes that "class involves a system of status

Reviews

Write a Review

Finance Basics Questions & Answers

  Dave bought the rental property for 200000 cash one year

1. barry and his wife mary have accumulated over 4 million during their 45 years of marriage. they have three children

  Insights regarding the intervention in capital markets

The Irish government has asked you to provide some insights regarding the intervention in capital markets. Explain in detail whether government interventions ar

  What must the coupon rate be on bonds

McConnell Corporation has bonds on the market with 18 years to maturity, a YTM of 9.0 percent, a par value of $1,000, and a current price of $1,206.50.

  Is-lm-fx model and stabilization policy

Suppose the fiscal authority of an economy implements expansionary policy. Specifically, the government introduces a lump-sum tax cut.

  What kind of oil transaction would reduce your risk

You own a refinery. It is worth more if the oil price is higher. Intuitively, what kind of oil transaction would reduce your risk?

  What is the significance of the plug figure

What is the significance of the “plug” figure, external financing required? Differentiate between strategies associated with positive values and with negative values for external financing required.

  Firm straight bonds yield

The firm's straight bonds yield 10%. Each warrant is expected to have a market value of $2.00 given that the stock sells for $42.

  What is the probability that casper company

If the company's marginal tax rate is 35%, what is the probability that Casper's company will have a negative EPS? Assume that EBIT will be normally distributed

  Compare and contrast the differing views an investor

Compare and contrast the differing views an investor and management may have on financial statements. How should investors and management view EVA and FCF?

  What will be his yearly annuity for the next 16 years

Alex Bell has just retired from the telephone company. His total pension funds have an accumulated value of $200,000 and his life expectancy is 16 more years. HIs pension fund manager assumes he can earn a 12% return on his assets.

  Behavior within firms in relation to financial management

From the e-Activity, examine ethical behavior within firms in relation to financial management. Give two (2) examples of companies that have been guilty of ethics-based malfeasance related to financial management, and determine whether or not t..

  Governing sustainability at the olympics

Governing sustainability at the Olympics: Quasi-governmental International Olympic Committee meets the Commission for a Sustainable London

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd