Q3. Portfolio Returns (20 points) Page 4 i. stock has mean of 8% and stdev...
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Q3. Portfolio Returns (20 points) Page 4 i. stock has mean of 8% and stdev of 18%; ii bond has mean of 6% and stdev of 12%; iii correlation b/w stock and bond of -0.4; iv. Risk free rate for cash lending and borrowing is at 2%.
d. You want to mix portfolio in Q3b with cash, in order to match the stdev risk of portfolio in Q3a. What is your cash position? What is the resulting mean return of the portfolio?
e. if you want to target 12% stdev risk per year, how would you combine Q3b risk parity portfolio with cash? What are the portfolio weights in cash, stock, and bond respectively? What are the mean returns for portfolio?
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