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FBE441_Homework_2_revised - USC MARSHALL SCHOOL OF BUSINESS...

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USC - MARSHALL SCHOOL OF BUSINESS FBE 441 Investments – P. Matos – Spring 2010 Homework Assignment #2 (revised 2/17) [due: Monday, February 22] Q.1. Consider the following data: Expected Return Standard Deviation Russell Fund 16% 12% Windsor Fund 14% 10% S&P Fund 12% 8% The correlation between the returns on the Russell Fund and the S&P Fund is .7. The rate on T-bills is 6%. Which of the following portfolios would you prefer to hold in combination with T-bills and why? (a) Russell Fund (b) Windsor Fund (c) S&P Fund (d) A portfolio of 60% Russell Fund and 40% S&P Fund. Q.2. Consider the data from the lecture notes on the US, UK and Japanese stock market: US UK Japan Means 0.1355 0.1589 0.1497 St. Dev. 0.1535 0.2430 0.2298 Correlation matrix: US UK Japan US 1.0000 0.5003 0.2663 UK 0.5003 1.0000 0.3581 Japan 0.2663 0.3581 1.0000 The risk-free rate is 5%. Suppose you are a US investor contemplating investing in the Japanese and UK stock markets. You currently have a 100% U.S. equity portfolio. a) Given the data above, what is the Sharpe ratio on your US portfolio?
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