FIN 3507 Study Guide - Final Guide: Money Market Fund, Standard Deviation, Stock Fund
Document Summary
Hw questions: given expected ror 17%, stdev of 27% and t-bill rate of 7%. E(rc) = y e(rp) + (1 y) rf e(rc) = y * 0. 17 + (1-y) * 0. 07 e(rc) = 0. 17y + (1-y)0. 07. E(rc) = 0. 17y + 0. 07 0. 07y 0. 15 = 0. 10y + 0. 07 0. 15 0. 07 = 0. 10y y = (0. 15-0. 07) / 0. 10 y = 0. 8 = T-bill: 1. 00 0. 80 (port) =0. 20= 20%, stock a: 0. 80*27%=0. 216=21. 6%, stock b: 0. 80*33% =0. 216=21. 6: risky port with an expected ror of 17% and a stdev of 27%. E(rc) = y e(rp) + (1 y) rf e(rc) = (port allocation * port ror) + (t-bill allocation * t-bill risk. E(rc) = (0. 70 * 0. 17) + (0. 30 * 0. 07) e(rc) = 0. 14 = 14% expected return of port. T-bill: 1. 00 0. 70 (port) =0. 30=30%, stock a: 0. 70*27% =0. 189=18. 9%, stock b: 0. 70*33% S = (port risk premium)/(stdev of port excess return: given expected rate of return 17%, stdev of 27% and t-bill rate of 7%.
