Improving expected rate of return without portfolio risk
Not what you're looking for?
Percival Hygiene has $10 million invested in long-term corporate bonds. This bond portfolio's expected annual rate of return is 9 percent, and the annual standard deviation is 10 percent. Amanda Reckonwith, Percival's financial adviser, recommends that Percival consider investing in an index fund which closely tracks the Standard and Poor's 500 index. The index has an expected return of 14 percent, and its standard deviation is 16 percent.
a. Suppose Percival puts all his money in a combination of the index fund and Treasury Bills. Can he thereby improve his expected rate of return without changing the risk of his portfolio? The Treasury bill yield is 6 percent.
Purchase this Solution
Solution Summary
Calculations are given and explained to find whether Percival can expect to improve his rate of return without changing his risk rate once he puts $10 million in index funds and treasury bills.
Solution Preview
The Treasury bill yield is 6 percent.
Percival's current portfolio provides an expected return of 9 percent with an annual standard deviation of 10 percent. We must first find the portfolio ...
Purchase this Solution
Free BrainMass Quizzes
Business Processes
This quiz is intended to help business students better understand business processes, including those related to manufacturing and marketing. The questions focus on terms used to describe business processes and marketing activities.
Organizational Leadership Quiz
This quiz prepares a person to do well when it comes to studying organizational leadership in their studies.
Paradigms and Frameworks of Management Research
This quiz evaluates your understanding of the paradigm-based and epistimological frameworks of research. It is intended for advanced students.
Marketing Research and Forecasting
The following quiz will assess your ability to identify steps in the marketing research process. Understanding this information will provide fundamental knowledge related to marketing research.
IPOs
This Quiz is compiled of questions that pertain to IPOs (Initial Public Offerings)