CourseLover

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Teaching Since: May 2017
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  • MCS,MBA(IT), Pursuing PHD
    Devry University
    Sep-2004 - Aug-2010

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    NatSteel Holdings Pte Ltd
    Aug-2007 - Jul-2017

Category > Business & Finance Posted 09 Dec 2017 My Price 10.00

to return RMbar = 9%, with a variance of sM2 = 36%2.

broad diversified bundle of stocks is expected to return RMbar = 9%, with a variance of  sM2 = 36%2.   The risk-free rate of return RF  = 1%.  

a. Gabrielle is somewhat cautious, so she invests 30% of her $10,000 portfolio in stocks, and 70% in risk-free Treasury bills.  What is the expected return, standard deviation and coefficient of variation for her portfolio?

b.  Gabrielle's friend Thomas is more adventuresome.  He also has $10,000 in funds, but he invests twice that much in the stock market by using his stockbroker's margin account. (That is, he borrows another $10,000 to buy stocks).  What is the expected return, standard deviation and coefficient of variation for his portfolio?  How much interest (in $) must he pay back to the broker per year?

c. Their friend Sarah wants to earn a return of 12%.  What should her portfolio weights be for stocks and for Treasury bills?  What is the standard deviation and CV for this portfolio?

d.  Sketch a graph showing how these friends' portfolios are positioned along the capital market line.

Answers

CourseLover
(12)
Status NEW Posted 09 Dec 2017 08:12 AM My Price 10.00

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