What is the expected return on the mutual fund

Assignment Help Financial Management

Reference no: EM13722811

Consider the following capital market: a risk-free asset yielding 0.75% per year and a mutual fund consisting of 70% stocks and 30% bonds. The expected return on stocks is 10.75% per year and the expected return on bonds is 3.25% per year. The standard deviation of stock returns is 30.00% and the standard deviation of bond returns 8.75%. The stock, bond and risk-free returns are all uncorrelated.

1. What is the expected return on the mutual fund?

2. What is the standard deviation of returns for the mutual fund?

Now, assume the correlation between stock and bond returns is 0.45 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).

3. What is the standard deviation of returns for the mutual fund? Is it higher or lower than the standard deviation found in part 2? Why?

Reference no: EM13722811

Questions Cloud

What is the value of conroys unlevered operations : Marston Marble Corporation is considering a merger with the Conroy Concrete Company. Conroy is a publicly traded company, and its beta is 1.30. Conroy has been barely profitable, so it has paid an average of only 20% in taxes during the last several ..

What is the expected rate of return : A company’s preferred stock is issued it $25 with promised evidence of 3% of four. Current price of the stock is $61. What is the expected rate of return?

Retirement account pays : Your retirement account pays 8% interest compounded monthly. You plan on having $1 million in the bank on the day you retire. You playing to work for 40 years and then retire. How much were you had to take out of your pay check at the beginning of ea..

Current trends in health care that are affecting hrm : Analyze two (2) current trends in health care that are affecting human resources management that may likely impact your hiring decision as HR manager. Provide support for your analysis.

What is the expected return on the mutual fund : Consider the following capital market: a risk-free asset yielding 0.75% per year and a mutual fund consisting of 70% stocks and 30% bonds. The expected return on stocks is 10.75% per year and the expected return on bonds is 3.25% per year. The standa..

What is the total yield of the investment : A bond that returns 4% annually and matures in 6 years. If you purchased the bond during the IPO at par, and similar bonds in today’s market are returning only 3% annually, what is the total yield of the investment?

Find the current yield of a bond : Find the current yield of a bond that returns 4% annually and matures in 6 years. Similar bonds in Today’s market are returning only 3% annually.

Credit sales are collected in the month of the sale : If the actual February 28 A/R balance was $12,000 and projected sales in March are $50,000, where 70% of sales are on credit, 60% of credit sales are collected in the month of the sale, and 40% are collected in the month after the sale, what is the p..

What was wallaces total long-term debt : At year-end 2013, Wallace Landscaping’s total assets were $1.0 million and its accounts payable were $350,000. Sales, which in 2013 were $2.5 million, are expected to increase by 25% in 2014. Total assets and accounts payable are proportional to sale..

User Account

All Pages