Maurice Tutor

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    Argosy University/ Phoniex University/
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    Phoniex University
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Category > Accounting Posted 21 Aug 2017 My Price 9.00

George Stephenson

1.   George Stephenson’s current portfolio of $2.0 million is invested as follows:

 

Summary of Stephenson’s Current Portfolio

 

 

Value

 

Percent of Total

 

Expected Annual Return

Annual Standard Deviation

Short-term bonds

$ 200,000

10%

4.6%

1.6%

Domestic large-cap equities

600,000

30

12.4

19.5

Domestic small-cap equities

1,200,000

60

16.0

29.9

Total portfolio

$2,000,000

100%

13.8%

23.1%

 

Stephenson soon expects to receive an additional $2.0 million and plans to invest the entire amount in an index fund that best complements the current portfolio. Stephanie Coppa, CFA, is evaluating the four index funds shown in the following table for their ability to produce a portfolio that will meet two criteria relative to the current portfolio:

(1)  maintain or enhance expected return and (2) maintain or reduce volatility.

Each fund is invested in an asset class that is not substantially represented in the current portfolio.

 

Index Fund Characteristics

 

Index Fund

Expected Annual Return

Expected Annual Standard Deviation

Correlation of Returns with Current Portfolio

Fund A

15%

25%

+0.80

Fund B

11

22

+0.60

Fund C

16

25

+0.90

Fund D

14

22

+0.65

 

State which fund Coppa should recommend to Stephenson. Justify your choice by describing how your chosen fund best meets both of Stephenson’s criteria. No calcula- tions are required.

 

Answers

Maurice Tutor
(5)
Status NEW Posted 21 Aug 2017 01:08 PM My Price 9.00

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