EBK INVESTMENTS
11th Edition
ISBN: 9781259357480
Author: Bodie
Publisher: MCGRAW HILL BOOK COMPANY
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Chapter 6, Problem 10PS
Summary Introduction
To calculate: The Expected return and variance of portfolio which are invested in T-bills and the S&P 500 index with weights.
Introduction:
Variance of portfolio: When we have to measure the dispersion of returns related to a portfolio, we use Variance of portfolio. It is supposed to be the aggregate of the actual over a given period of time.
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Consider historical data showing that the average annual rate of return on the S&P 500 portfolio over the past 85 years has averaged roughly 8% more than the Treasury bill return and that the S&P 500 standard deviation has been about 38% per year. Assume these values are representative of investors' expectations for future performance and that the current T-bill rate is 5%. Calculate the expected return and variance of portfolios invested in T-bills and the S&P 500 index with weights as shown below. (Enter your answers as decimals rounded to 4 places. Leave no cells blank - be certain to enter "0" wherever required.)
WBills: WIndex: Expected Return: Variance:
0.0 1.0 0.1300 0.1444 Example
0.2 0.8
0.4 0.6
0.6 0.4
0.8 0.2
1.0 0.0
The analysts at FNB forecasted that the return on DJIA index portfolio over the coming year will be 14%. The one year T-Bill rate is 6%. While examining the recent returns of the DJIA index, the analysts estimated that the variance of these returns will be 12.4%. What is the degree of the risk aversion for the average investor, assuming the average portfolio resembles the DJIA index
Assuming the below annual rates of return:
Annual Rates of Return:
Wamart - 12.36%
Coca Cola - 25.51%
Pfizer - 14%
CVS - 32.99%
Berkshire Hathaway - 29.66%
Assume that you initially invested $1,000,000 in the portfolio and that the distribution of the annual rate of return of the portfolio is normal.
What is the distribution of the return of the portfolio 20 years after its formation?
Provide the graph of the distribution of the return of the portfolio.
Chapter 6 Solutions
EBK INVESTMENTS
Ch. 6.A - Prob. 1PCh. 6.A - Prob. 2PCh. 6 - Prob. 1PSCh. 6 - Prob. 2PSCh. 6 - Prob. 3PSCh. 6 - Prob. 4PSCh. 6 - Prob. 5PSCh. 6 - Prob. 6PSCh. 6 - Prob. 7PSCh. 6 - Prob. 8PS
Ch. 6 - Prob. 9PSCh. 6 - Prob. 10PSCh. 6 - Prob. 11PSCh. 6 - Prob. 12PSCh. 6 - Prob. 13PSCh. 6 - Prob. 14PSCh. 6 - Prob. 15PSCh. 6 - Prob. 16PSCh. 6 - Prob. 17PSCh. 6 - Prob. 18PSCh. 6 - Prob. 19PSCh. 6 - Prob. 20PSCh. 6 - Prob. 21PSCh. 6 - Prob. 22PSCh. 6 - Prob. 23PSCh. 6 - Prob. 24PSCh. 6 - Prob. 25PSCh. 6 - Prob. 26PSCh. 6 - Prob. 27PSCh. 6 - Prob. 28PSCh. 6 - Prob. 29PSCh. 6 - Prob. 1CPCh. 6 - Prob. 2CPCh. 6 - Prob. 3CPCh. 6 - Prob. 4CPCh. 6 - Prob. 5CPCh. 6 - Prob. 6CPCh. 6 - Prob. 7CPCh. 6 - Prob. 8CPCh. 6 - Prob. 9CP
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