Explore BrainMass

Explore BrainMass

    Probability and Returns

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    See attached file for proper format of template.

    Profitability and Returns.

    The assignment requires that I consider whether this is a good investment, by comparing it with investing in a bond fund. I will need to graph the opportunity set, calculate the weights, expected returns, variance and standard deviation in the attached Excel spreadsheet. All answers must be entered into the gray cells, along with the formula showing all work and how the answer was derived.

    Input area:

    10-year annual return Standard deviation
    Bledsoe Large Company Stock Fund 11.08% 26.73%
    Bledsoe Bond Fund 8.15% 10.34%
    Risk-free rate (historic) 2.76%

    Correlation 0.16

    Output area:

    Weight of stock fund Portfolio E(R) "Portfolio standard
    deviation"
    0% 10.34%
    10% 10.08%
    20% 10.54%
    30% 11.63%
    40% 13.19%
    50% 15.08%
    60% 17.19%
    70% 19.45%
    80% 21.81%
    90% 24.24%
    100% 26.73%

    Dominant portfolio:
    Weight of stock fund 17.11%
    Weight of bond fund 82.89%
    Standard deviation 10.34%
    Expected return

    Minimum variance portfolio:
    Weight of large cap stock fund 8.55%
    Weight of bond fund 91.45%
    Expected return
    Variance 0.010155
    Standard deviation 10.0774%

    Sharpe optimal portfolio: (Using Solver)
    Weight of large cap stock fund 15.79%
    Sharpe ratio 0.570098

    Weight of large cap stock fund 15.75%
    Weight of bond fund 84.25%
    Expected return
    Standard deviation 10.2640%
    Sharpe ratio

    © BrainMass Inc. brainmass.com June 4, 2020, 2:05 am ad1c9bdddf
    https://brainmass.com/business/bond-valuation/probability-returns-437308

    Attachments

    Solution Summary

    The solution does a great job of answering the question. The solution is brief and concise and very easy to follow along. All the steps are clearly shown and Excel formulas are provided so that the student can answer similar questions in the future. It can be easily understood by anyone with a basic understanding of the topic. Overall, an excellent solution.

    $2.19

    ADVERTISEMENT