Now consider the set of portfolios that can be obtained by combining the stock and the...

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Finance

Now consider the set of portfolios that can be obtained bycombining the stock and the bond. Please show your detailedcalculations or provide arguments to support youranswers
Allocation to Stock
Allocation to Bond
Portfolio Mean
Portfolio Std Dev
0%
100%
10.0%
10.00%
25%
75%
11.25%
10.55%
50%
50%
12.50%
12.85%
75%
25%
13.75%
16.17%
100%
0%
15.0%
20.00%
a. What percentage of your wealth is allocated in the stock andbond at the minimum variance portfolio?
b. What percentage of your wealth is allocated in the stock andbond at the Sharpe -optimal portfolio?
c. Calculate the expected return and standard deviation for theSharpe-optimal portfolio
d. What is the smallest expected loss for this portfolio overthe coming year with a probability of 2.5% using the VaR?

Answer & Explanation Solved by verified expert

4.5 Ratings (847 Votes)

Question a First of all find out the portfolio which is having minimum variance Since variance is square of standard deviation therefore the portfolio with minimum variance will also have minimum standard deviation which is the first portfolio in the table above having portfolio standard deviation of 10 Percentage of wealth allocated to stock is 0 and wealth allocated to bond is 100 in this portfolio This is very much on the expected See Answer

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Now consider the set of portfolios that can be obtained bycombining the stock and the bond. Please show your detailedcalculations or provide arguments to support youranswersAllocation to StockAllocation to BondPortfolio MeanPortfolio Std Dev0%100%10.0%10.00%25%75%11.25%10.55%50%50%12.50%12.85%75%25%13.75%16.17%100%0%15.0%20.00%a. What percentage of your wealth is allocated in the stock andbond at the minimum variance portfolio?b. What percentage of your wealth is allocated in the stock andbond at the Sharpe -optimal portfolio?c. Calculate the expected return and standard deviation for theSharpe-optimal portfoliod. What is the smallest expected loss for this portfolio overthe coming year with a probability of 2.5% using the VaR?

Allocation to Stock	Allocation to Bond	Portfolio Mean	Portfolio Std Dev
0%	100%	10.0%	10.00%
25%	75%	11.25%	10.55%
50%	50%	12.50%	12.85%
75%	25%	13.75%	16.17%
100%	0%	15.0%	20.00%