Assume that you have all your wealth (one million dollars) invested in the Vanguard 500 index fund, and that you expect to earn an annual return of 11%, with a standard deviation in returns of 24%. Since you have become more risk averse, you decide to shift $200,000 from the Vanguard 500 index fund to Treasury bills. The T-bill rate is 5%. Estimate the expected return and standard deviation of your new portfolio.

Assume that you have all your wealth (one million dollars) invested in the Vanguard 500 index fund, and that you expect to earn an annual return of 11%, with a standard deviation in returns of 24%. Since you have become more risk averse, you decide to shift $200,000 from the Vanguard 500 index fund to Treasury bills. The T-bill rate is 5%. Estimate the expected return and standard deviation of your new portfolio.

Managerial Economics: A Problem Solving Approach

5th Edition

ISBN:9781337106665

Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Publisher:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Chapter17: Making Decisions With Uncertainty

Section: Chapter Questions

Problem 17.1IP

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