Finance-How much is allocated to each class of assts

| January 30, 2017

1. How much is allocated to each class of assts?

2. The expected returns for each asset class are as follows:

Large company stocks 10%

Small company stocks 12%

Corporate bonds 6%

Treasury bills 3%

How much will be in each account when the girls approach college age ten years from now?

3. Given the terminal values in the previous ques- tion, what is the portfolio’s asset allocation? What steps should be taken?

4. The expected returns in Question 2 are based on historical returns, but the period 2008– 2009 has proven that returns can be much lower than those in Question 2. Suppose the returns on large cap and small cap stocks were only 1.4 and 3.2 percent, respectively. How much would be in the account after ten years? (Assume the yields on corporate bonds and Treasury bills remain 6 percent and 3 percent, respectively)

Textbook used is :

Mayo, H. B. (2008). Investments: An introduction (11th ed.). Mason, OH: South-Western, Cengage Learning. Chapter 20, Pages 743 thru 757


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