Question

3. P. Morgan Asset Management publishes information about financial investments. Over the past 10 years, the expected retum for the S&P 500 was 5.04 %with a standard deviation of 19.45 %and the expected return over that same period for a Core Bonds fund was 5.78 %with a standard deviation of 2.13 %(J. P. Morgan Asset Management, Guide to the Markets, 1st Quarter, 2012). The publication also reported that the correlation between the Sap 500 and Core Bonds is -0.32. You are considering portfolio investments that are composed of an S&P 500 index fund and a Core Bonds fund.

a. Using the information provided, determine the covariance between the S\&P 500 and Core Bonds. Round your answer to two decimal places. If required enter negative values as negative numbers.

b. Construct a portfolio that is 50 %invested in an S8P 500index fund and 50 %in a Core Bond fund. Round your answers to one decimal place.

In percentage terms, what is the expected return and standard deviation for such a portfolio? Round your answers to two decimal places.

Expected return = _______  %

Standard deviation = _______ %

c. Construct a portfolio that is 20 %invested in an ssp 500 index fund and 80 %invested in a Core bond fund. Round your answers to one decimal place. 

In the percentape terms, what is the expected return and standard deviation for such a portfolio? 

d. Construct A portfolio that is 80 %invested in an SSP 500 index fund and 20 % invested in a Core bond fund. 

e. Which of the portfolios in parts (b),(c), and (d) above has the largest expected return?

f. Discuss the advantages and disadvantages of investing in the three portfolios in parts ( b ), (c), and (d). 

The input in the box below will not be graded but may be reviewed and considered by your instructor.

Would you prefer investing all of your money in the S8.P 500 index, the Core bond fund, or one of the 3 portfolios?

The input in the box below will not be graded, but may be reviewed and considered by your instructor.

Answer 1

Refer to the attached images:

Core Bonde fund (4) 5-78% 213yE correlation coeffcient CY 032 SCovanian ce betuseen 4he S&f soo and Core Bonds (-0.82)(19.45) (2-13 ) 22 Wx - so% wyesor aptae katos qra taprel tsoú)tos) + Cs:78) (0 .5 2-52 2:8 9 indMdte? G. os (11.45)4 (05)* ( 2.132o0S(i9.5)215) N4.58 3 9.44 /. 20% _Portfelio return (Ree (5.04) (o.2) + (578) (08) S.63 1/2

2.:132(0.230(0.8)(19.95)(2-13-31 C 45 37.7 3-71 % w 20% Rpe (o.8).o4) + (02) (s.78) Y 519 o ys)4(0.2* ( 20183"+2(02)(0.2)(|9.5)(213) (-032) 238.05 5:43 5 ortfoli. hat is 2eiy iovested in s soo, a'nd 80 1. dadeve bond fumdí hos the largest expected seturn Portfelio that is 20%: invested in s&p soo and &o. in Core bond tund hes the smadlest shandard deiathion. Portfoliowith wxe 20 7. and to is te best investment aaternatise 2 :2+p עי 2/2