anyone good with investments?

[IInvented]

A pension fund manager is considering three mutual funds. The first is a stock fund, the second is a long-term government and corporate bond fund, and the third is a T-bill money market fund that yields a sure rate of 5.4%. The probability distributions of the risky funds are:

Expected Return Standard Deviation
Stock fund (S) 15% 44%
Bond fund (B) 8% 38%

The correlation between the fund returns is .0684.

What is the expected return and standard deviation for the minimum-variance portfolio of the two risky funds? (Do not round intermediate calculations. Round your answers to 2 decimal places.)


Expected return %
Standard deviation %


my teacher doesn't explain shit just talks the whole hour and then assigns homework... I have no clue how to ****in do it. And it's pissing me off. smh I need to get it done by tonight. If anyone has a clue or can direct me to a website, i'd greatly appreciate it. Thanks

[shaq2000]

Variance = (standard deviation)^2
Covariance(1,2) = correlation(1,2) * variance(1) * variance(2)
Portfolio variance = weight(1)^2*variance(1) + weight(2)^2*variance(2) + 2*weight(1)*weight(2)*covariance(1,2)
ER of portfolio = weight(1)*ER(1) + weight(2)*ER(2)

So for the two riskiest funds...

variance(1) = 0.44^2 = 0.1936
variance(2) = 0.38^2 = 0.1444
covariance(1,2) = 0.0684 * 0.1936 * 0.1444 = 0.001912179456
weight(1) = x
weight(2) = y
variance(portfolio) = 0.1936x^2 + 0.1444y^2 + 0.003824358912xy

Then I think what you'd do is find an x, y combination that minimizes portfolio variance. Then use those weights to calculate the expected return of the portfolio.

ER(portfolio) = 0.15x + 0.08y

[Fresh Kid]

Good look bruh, but damn I feel like Im havin flashbackz like Im back in math class:wtf:

[nightprowler10]

This is ISH. So... everyone?

[nathanjizzle]

yea, im trying to plant seeds on my ex girlfriend thats in dental school.

175k a year :eek:

[Bless Mathews]

Get locked up. Give an essay all your extra commissary and then hit em up when you out....iiio

[DCL]

Variance = (standard deviation)^2
Covariance(1,2) = correlation(1,2) * variance(1) * variance(2)
Portfolio variance = weight(1)^2*variance(1) + weight(2)^2*variance(2) + 2*weight(1)*weight(2)*covariance(1,2)
ER of portfolio = weight(1)*ER(1) + weight(2)*ER(2)

So for the two riskiest funds...

variance(1) = 0.44^2 = 0.1936
variance(2) = 0.38^2 = 0.1444
covariance(1,2) = 0.0684 * 0.1936 * 0.1444 = 0.001912179456
weight(1) = x
weight(2) = y
variance(portfolio) = 0.1936x^2 + 0.1444y^2 + 0.003824358912xy

Then I think what you'd do is find an x, y combination that minimizes portfolio variance. Then use those weights to calculate the expected return of the portfolio.

ER(portfolio) = 0.15x + 0.08y


someone has just taken a class on modern portfolio theory.

you will forget all this shit when you enter the real world. :oldlol:

[brantonli]

K so I differentiated this:

Var(xS+(1-x)B) = x^2*0.44^2 + (1-x)^2*0.38^2+2*x*(1-x)*p*0.44*0.38
Where:
S= stock
B= bond
x = proportion of portfolio in stock
p = correlation coefficient

The right hand side is just the usual formula for any:

Var (aX + bY) = a^2*Var(X) + b^2*Var(Y) + 2ab*Cov(X,Y)

where:

Cov (X,Y) = p*SD(X)*SD(Y)

I got x = 42.2%, so I think for the min-variance port, you will put 42.2% in stocks nad 57..8% in bonds. I could be totally wrong though, which would be annoying.