Math

StatisticsSTATISTICS F/BUSINESS+ECONOMICS-TEXTIn addition to the information in exercise 29 on the S&P 500 and core bonds, J.P. Morgan Asset Management reported that the expected return for real estate investment trusts (REITs) was 13.07% with a standard deviation of 23.17% ( J.P. Morgan Asset Management, Guide to the Markets, 1st quarter, 2012). The correlation between the S&P 500 and REITs is .74 and the correlation between core bonds and REITs is −.04. You are considering portfolio investments that are composed of an S&P 500 index fund and REITs as well as portfolio investments composed of a core bonds fund and REITs. a. Using the information provided here and in exercise 29, determine the covariance between the S&P 500 and REITs and between core bonds and REITs. b. Construct a portfolio that is 50% invested in an S&P 500 fund and 50% invested in REITs. In percentage terms, what are the expected return and standard deviation for such a portfolio? c. Construct a portfolio that is 50% invested in a core bonds fund and 50% invested in REITs. In percentage terms, what are the expected return and standard deviation for such a portfolio? d. Construct a portfolio that is 80% invested in a core bonds fund and 20% invested in REITs. In percentage terms, what are the expected return and standard deviation for such a portfolio? e. which of the portfolios in parts (b), (c), and (d) would you recommend to an aggressive investor? which would you recommend to a conservative investor? why?BuyFind*arrow_forward*

13th Edition

Anderson

Publisher: CENGAGE L

ISBN: 9781305881884

Chapter 5.4, Problem 30E

Textbook Problem

In addition to the information in exercise 29 on the S&P 500 and core bonds, J.P. Morgan Asset Management reported that the expected return for real estate investment trusts (REITs) was 13.07% with a standard deviation of 23.17% (*J.P. Morgan Asset Management, Guide to the Markets,* 1st quarter, 2012). The correlation between the S&P 500 and REITs is .74 and the correlation between core bonds and REITs is −.04. You are considering portfolio investments that are composed of an S&P 500 index fund and REITs as well as portfolio investments composed of a core bonds fund and REITs.

- a. Using the information provided here and in exercise 29, determine the covariance between the S&P 500 and REITs and between core bonds and REITs.
- b. Construct a portfolio that is 50% invested in an S&P 500 fund and 50% invested in REITs. In percentage terms, what are the expected return and standard deviation for such a portfolio?
- c. Construct a portfolio that is 50% invested in a core bonds fund and 50% invested in REITs. In percentage terms, what are the expected return and standard deviation for such a portfolio?
- d. Construct a portfolio that is 80% invested in a core bonds fund and 20% invested in REITs. In percentage terms, what are the expected return and standard deviation for such a portfolio?
- e. which of the portfolios in parts (b), (c), and (d) would you recommend to an aggressive investor? which would you recommend to a conservative investor? why?

STATISTICS F/BUSINESS+ECONOMICS-TEXT

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