416 cheatxxx - Investor decided to invest wealth into a...

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Investor decided to invest wealth into a mutual fund expected return of 10% and has st. dev of 16%. 99% probability that a normally distributed return will be less than 3.09 st. dev away from the mean. With 99% certainty, what the max possible return and lowest possible return 10 +(3.09)(16)=59.44 10 -(3.09)(16)=-39.44% Investor taken position in 4 mutual funds. One of the investors rick portfolio, 20% into a fund with beta of .1, 30% into find with beta of 1, and 40% into fund with beta of .5 and 10% into fund with beta of .3. what is the beta of the portfolio B p = .2(0.1)+.3(1)+.4(0.5)+.1(0.3)=0.55 Investor trying to choose between two risky mutual funds, one fund invests into stock and bonds with beta of .7, and other fund invest to stoc,k, bonds foreign assets, real assets, and has beta of .9, investor is riskaverse. Would should investor do Invest more into diversified mutual fund and use the leverage to move down the CML. Investor could invest portion of wealth into mutual fund that invests into stocks bonds and forgein assets and the rest into a risk-free asset to maximize expected return for any level of return st. dev. Investor considering adding asset to diversified port. The asset has a return standard dev. Of 325.97% and beta of -15.5 portfolio beta= 1.1 and return st. dev. Of 18.05 investor is riskaverse, would adding asset to investors port. inc or dec portfolio risk Decrease because of neg. beta Mutual fund is investing money into 5 stks in eq amts (20% for ea) stock have betas 1.1, 1.5, 0.9, 1.2, and 1.3 whats the beta of mutual funds port. 1.1+1.5+0.9+1.2+1.3/5=1.2 Investor decided to invest 20% of wealth into bond mutual fund with beta of .2, 30% into stock mutual fund beta of 1.1, 30% into a foreign mutual fund with beta of 0.5, 10% into a real asset mutual fund with a beta of 0.3, and 10% into a risk-free asset. All mutual funds are diversified within her investment category. St dev of return on mkt portfolio is estimated to be 15% whats st. dev. Of investors portfolio? B w = (0.2)(0.2)+(0.3)(1.1)+(0.3)(0.5)+(0.1)(0.3)+(0.1)(0)+0.55 S w =(.55)(15)=8.25% Diversification rules of thumb: Dont invest any more than 5% into the securities of any single issuer and no more than 1% into any one very risky asset, invest no more than 20% into any industry or foreign region and invest no more than 60% (no less than 5%) into any investment category Suppose you’re tolerant to risk, and can afford to risk losing all wealth next year, B p =1.3 and R f =8% How much wealth should you put into risky port. What does this imply about level of leverage?
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This note was uploaded on 06/29/2011 for the course FIN 322 taught by Professor Zhu during the Spring '11 term at Oakland University.

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416 cheatxxx - Investor decided to invest wealth into a...

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