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Unformatted text preview: = .09 or 9%. b. Realized return = (Ending value Beginning value)/ beginning value. = (60 75)+2+3 / 100 = 10% c. The relative portfolio weights have changed due to the decline in prices. Assume that the dividends are reinvested in the Stock portfolio and that the interest earned is reinvested in the tbill portfolio. The endowment is now worth $90m, with $63m in the risky portfolio and $27m in Tbills. As above, expected return = .122 or 12.2%. If the same expected return is desired, ie 12.5%, the endowment will have to shift funds from tbills to the risky asset. Solving for w in an expression where expected return = the desired 12.5% , Portfolio weights work out to be .75 in the risky asset and .25 in tbills. This implies that the managers would sell 4.5m worth of tbills and invest the proceeds in the risky portfolio. 4 5...
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This note was uploaded on 12/05/2011 for the course ECON 134b taught by Professor Johnhartman during the Fall '11 term at UCSB.
 Fall '11
 JohnHartman

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