25 Jul WHAT IS THE PROPORTION Y WHICH GUARANTEES AN EXPECTED RETURN OF 10% FOR THE PORTFOLIO?
mutual fund Show more Jim has some money to invest for one year. He can choose to invest his money either in a mutual fund or in a savings account or in a combination of both. The guaranteed interest rate on a savings account is 6%(his bank also accepts to lend money at 6% interest rate). The mutual fund is a portfolio of stocks. Like an ordinary stock investors can buy shares of this mutual fund which give right to receive dividends and which can be sold at any time. The price of a share of the mutual fund today is $80. Based on historical data and his view of the current economic situation Jim makes the following scenario. There is a chance that the economy will boom with rms making high pro ts. In this case the dividends per share of the mutual fund over the next year will be $5 a share and the shareprice in one year from now will be $115. Jim attributes a probability of 0.3 to this possibility. With probability 0.5 the economy will follow its current trend. In this case the dividends will $4 a share and the price next year will be $84. However a downturn is not impossible given that the economy lacks strength. In this case the dividends will be the same at $4 per share but the price next year will be as low as $60 a share. Jim attributes a probability 0.2 to this possibility. (a) Draw a table with the possible states of the economy their probabilities and the rate of return of the mutual fund in each state. (b) Compute the expected rate of return on the mutual fund its standard deviation and its Sharpe ratio. (c) Compute the expected rate of return and standard deviation of Jims portfolio if he invests a proportion y of his money in the mutual fund and 1-y in the savings account. (d) What is the proportion y which guarantees an expected return of 10% for the portfolio? What is the risk (standard deviation) of the portfolio? Show less
Our website has a team of professional writers who can help you write any of your homework. They will write your papers from scratch. We also have a team of editors just to make sure all papers are of HIGH QUALITY & PLAGIARISM FREE. To make an Order you only need to click Ask A Question and we will direct you to our Order Page at WriteDemy. Then fill Our Order Form with all your assignment instructions. Select your deadline and pay for your paper. You will get it few hours before your set deadline.
Fill in all the assignment paper details that are required in the order form with the standard information being the page count, deadline, academic level and type of paper. It is advisable to have this information at hand so that you can quickly fill in the necessary information needed in the form for the essay writer to be immediately assigned to your writing project. Make payment for the custom essay order to enable us to assign a suitable writer to your order. Payments are made through Paypal on a secured billing page. Finally, sit back and relax.
About Writedemy
We are a professional paper writing website. If you have searched a question and bumped into our website just know you are in the right place to get help in your coursework. We offer HIGH QUALITY & PLAGIARISM FREE Papers.
How It Works
To make an Order you only need to click on “Order Now” and we will direct you to our Order Page. Fill Our Order Form with all your assignment instructions. Select your deadline and pay for your paper. You will get it few hours before your set deadline.
Are there Discounts?
All new clients are eligible for 20% off in their first Order. Our payment method is safe and secure.