Question

Asked Aug 1, 2019

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Q5. You are considering two investment choices: a. 1 year CD that pays 2% for sure; b. investing in SP500 with 8% expected and 20% stdev.

Q5c. You want to reach 15% mean return per year as a minimum. What is the least amount you need to allocate to stocks? What is the stdev of the portfolio?

Step 1

**Portfolio Mean and SD**

**I am answering all the sub-parts**

Q5. You are considering two investment choices: a. 1 year CD that pays 2% for sure; b. investing in SP500 with 8% expected and 20% stdev.

Q5a. If you put 50% in each of the two, what in the mean and stdev for your portfolio return?

Q5b. You want to maximize your expected return for the portfolio, as long as the stdev risk is no more than 10% per year. What is the allocation to CD and to stocks? What is the mean return of the portfolio?

Q5c. You want to reach 15% mean return per year as a minimum. What is the least amount you need to allocate to stocks? What is the stdev of the portfolio?

Formula To calculate Expected Return and standard deviation of portfolio

Step 2

5A) Calculation of Expected Return and Standard Deviation Of portfolio

Standard deviation of CD is 0 as return of 2% is assured

Step 3

5B) Let the standard deviation of portfolio be 10%

Let weights of w1 and w2 be assigned to CD and stock respectively.

W1 + w2 = 1 a...

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