What is the expected return on the mutual fund

Assignment Help Finance Basics
Reference no: EM132796885

A) Consider the following capital market: a risk-free asset yielding 2.25% per year and a mutual fund consisting of 70% stocks and 30% bonds. The expected return on stocks is 13.75% per year and the expected return on bonds is 3.75% per year. The standard deviation of stock returns is 40.00% and the standard deviation of bond returns 14.00%. The stock, bond and risk-free returns are all uncorrelated. What is the expected return on the mutual fund? Enter your answer rounded to two decimal places.

B) Using the data from problem A, what is the standard deviation of returns for the mutual fund? Enter your answer rounded to two decimal places.

C) Using the data from problem A, now, assume the correlation between stock and bond returns is 0.33 and the correlations between stock and risk-free returns and between the bond and risk-free returns are 0 (by construction, correlations with the risk-free asset are always zero). What is the standard deviation of returns for the mutual fund with this new higher correlation? Enter your answer rounded to two decimal places.

D) Using the data from problem C, what is the standard deviation of the minimum variance portfolio formed from this stock and bond portfolio? Enter your answer rounded to two decimal places.

Reference no: EM132796885

Questions Cloud

What is the arbitrage profit per share at the expiration : Assuming the analyst is correct, what is the arbitrage profit per share at the expiration date of the forward contract?
Determine the amount of cash paid for rent : Accounts payable went down by $4,000, salary payable went up by $3,000, and inventory went down by $2,000. Determine the amount of cash paid for rent.
Describe three recommendations for improvement : The child care facility environment will influence child-child, child-adult, and child-material interactions. Every aspect of the facility's design deserves.
Calculate Project X discounted payback period : Assume the discount rate is 10 percent. Calculate Project X's discounted payback period. Should the project be accepted
What is the expected return on the mutual fund : The stock, bond and risk-free returns are all uncorrelated. What is the expected return on the mutual fund? Enter your answer rounded to two decimal places.
What amount the loss on the disposal will be reported : Licorice division resulting in a loss of $60,000. Assuming a tax rate of 25%, the loss on this disposal will be reported on the income statement at what amount?
What is the implied repo rate : Morgan Stanley is quoting a forward price of $71.92 per share for a 4 month forward contract on Biogen stock. What is the implied repo rate?
How you can address the problem from a christian worldview : Share your thoughts on how you can address the problem from a Christian worldview. Topic: A Biblical Perspective for Addressing Organizational Problems.
What is the weighted average cost of capital for disneyland : The current market risk premium is 8.5 percent and the current risk-free rate is 3.6 percent. What is the weighted average cost of capital?

Reviews

Write a Review

Finance Basics Questions & Answers

  Competence and independence of the audit committee

Give FIVE examples of how the Associated British Foods PLC has complied with the Code regarding the competence and independence of the audit committee.

  Problem regarding the selection of housing

How does a person's employment and household situation influence the selection of housing?

  If a 5-year ordinary annuity has a present value of 1000

if a 5-year ordinary annuity has a present value of 1000 and if the interest rate is 10 percent what is the amount of

  Calculate the divisional margin for the year

Calculate the divisional margin for the year. Calculate the DuPont ROI, and evaluate the performance of Global Resources in relation to the expected performance. Calculate the residual income.

  Calculate the future value

In planning for her retirement, Lucy considers setting up a retirement account with $250 monthly payments at a annual rate of 3%. Calculate the future value in 35 years.

  How much does the bank hold in tier-one capital

A bank reports the following items on its latest balance sheet: allowance for loan and lease losses, $42 million; undivided profits, $81 million.

  The expanding capital corporation has a current capital

The Expanding Capital Corporation has a current capital structure of $15 million in secured bonds paying 6.5% annual interest, $10 million in preferred stock with a par value of $50 per share and an annual dividend of $3.80 per share, and common stoc..

  What would be the operating profit or loss with production

What would be the operating profit or loss associated with the production and sales of 443 swim trunks? The response must be typed.

  What impact will a trade deficit have on interest rates

Suppose a new process was developed that could be used to make oil out of seawater. The equipment required is quite expensive, but it would

  We would expect that all else being equal investors would

1. we would expect that all else being equal investors would pay less for a stock that they view as having become more

  Release of the movie harriblr bosses

A survey of more than 2,000 workers was commissioned by CareerOne.com.au to coincide with the release of the movie Harriblr Bosses. The survey found that 36% of respondents described their current boss as ‘good', 31.6% as ‘average' and 32% as ‘hor..

  Meaning as well as importance of bottlenecks

Meaning as well as Importance of Bottlenecks and identifying the main premise of the book and important issues raised in the book

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