long term treasury etf, and short term cash.

| November 24, 2016

I was wondering if you could help me with allocating between SP500 index, long term treasury etf, and short term cash.

Q: You are considering allocating between SP500 index, long term treasury bond etf, and short term cash.

i, Assume SP500 earns 10% expected return with 16% annual volatility.

ii, Assume long term bond earn 5% expected return with 8% annual volatility.

iii, Cash has interest rate of zero for both lending and borrowing.

a) Assuming a correlation of -0.6, what is the mean and standard deviation of a portfolio with 60% in stocks and 40% in bonds?

b) Assuming a correlation of 0.6, what is the mean and standard deviation of portfolio with 60% in stocks and 40% in bonds?

c) You wan to create a new portfolio by allocating between portfolio in a) and cash to match the standard deviation in b). What is the weight in a) portfolio and cash?

d) What is the fraction of c) portfolio that invested in SP500, long term bond and cash respectively?

e) What is the mean and variance for returns and portfolio in c)?

I am looking forward to hearing from you soon.

Thank you very much!!!!

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