You invest 60% of your financial assets in Standard & Poor's Depository Receipts (SPY) and 40% of your financial assets in MSCI EAFE Index Fund (EFA). SPY has an expected return of 8% and a standard deviation of 15%. EFA has an expected return of 10% and a standard deviation of 18%. The correlation between the two investments is 0.6. The risk- free rate is 1%. a. Briefly explain the investment strategies of SPY and EFA. b. What is the expected return, the standard deviation, and the Sharpe ratio of your portfolio? Show the mathematical equations that you use to derive these measures.

You invest 60% of your financial assets in Standard & Poor's Depository Receipts (SPY) and 40% of your financial assets in MSCI EAFE Index Fund (EFA). SPY has an expected return of 8% and a standard deviation of 15%. EFA has an expected return of 10% and a standard deviation of 18%. The correlation between the two investments is 0.6. The risk- free rate is 1%. a. Briefly explain the investment strategies of SPY and EFA. b. What is the expected return, the standard deviation, and the Sharpe ratio of your portfolio? Show the mathematical equations that you use to derive these measures.

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter8: Analysis Of Risk And Return

Section: Chapter Questions

Problem 5P

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