**Please solve using Excel and show formulas.** Percival Hygiene has $10 million invested in long-term corporate bonds. This bond portfolio’s expected annual rate of return is 13%, and the annual standard deviation is 12%. Amanda Reckonwith, Percival’s financial adviser, recommends that Percival consider investing in an index fund that closely tracks the Standard & Poor’s 500 index. The index has an expected return of 18%, and its standard deviation is 17%. The correlation between the bond portfolio and the index fund is +0.2. Question: If percival invests 70% in the corporate bond portfolio and 30% in index fund, what would be the expected rate of return and the standard deviation of this investment? Multiple Choice The expected rate of return = 14.5% and the standard deviation = 12.2% The expected rate of return = 14.5% and the standard deviation = 9.2% The expected rate of return = 15.5% and the standard deviation = 11.3% The expected rate of return = 15.5% and the standard deviation = 12.7% The expected rate of return = 14.5% and the standard deviation = 10.7%
Risk and return
Before understanding the concept of Risk and Return in Financial Management, understanding the two-concept Risk and return individually is necessary.
Capital Asset Pricing Model
Capital asset pricing model, also known as CAPM, shows the relationship between the expected return of the investment and the market at risk. This concept is basically used particularly in the case of stocks or shares. It is also used across finance for pricing assets that have higher risk identity and for evaluating the expected returns for the assets given the risk of those assets and also the cost of capital.
**Please solve using Excel and show formulas.**
Percival Hygiene has $10 million invested in long-term corporate bonds. This bond portfolio’s expected annual
The correlation between the bond portfolio and the index fund is +0.2.
Question: If percival invests 70% in the corporate bond portfolio and 30% in index fund, what would be the expected rate of return and the standard deviation of this investment?
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The expected rate of return = 14.5% and the standard deviation = 12.2%
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The expected rate of return = 14.5% and the standard deviation = 9.2%
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The expected rate of return = 15.5% and the standard deviation = 11.3%
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The expected rate of return = 15.5% and the standard deviation = 12.7%
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The expected rate of return = 14.5% and the standard deviation = 10.7%
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