1. What is the expected return on the mutual fund? 2. What is the standard devia
ID: 2685707 • Letter: 1
Question
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 0.70 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? Now, assume that the standard deviation of the mutual fund portfolio is exactly 11.00% per year and a potential customer has a risk-aversion coefficient of 2.0. 4. What correlation between the stock and bond returns is consistent with this portfolio standard deviation? 5. What is the optimal allocation to the risky mutual fund (the fund with exactly 11.00% standard deviation) for this investor? 6. What is the expected return on the complete portfolio? 7. What is the standard deviation of the complete portfolio? 8. What is the Sharpe ratio of the complete portfolio?Explanation / Answer
Incomplete question, you have not mentioned the SD of the stock and SD of the bond. Also, please post one question per post. Multiple questions are not allowed in a single post. 1. expected return on the mutual fund= (.55x9)+(.45x2.5)= 6.075%
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