Calculate the standard deviation

Assignment Help Financial Management
Reference no: EM131914886

Greta, an elderly investor, has a degree of risk aversion of A = 3 when applied to return on wealth over a 3-year horizon. She is pondering two portfolios, the S&P 500 and a hedge fund, as well as a number of 3-year strategies. (All rates are annual, continuously compounded.) The S&P 500 risk premium is estimated at 10% per year, with a SD of 24%.

The hedge fund risk premium is estimated at 8% with a SD of 38%. The return on each of these portfolios in any year is uncorrelated with its return or the return of any other portfolio in any other year. The hedge fund management claims the correlation coefficient between the annual returns on the S&P 500 and the hedge fund in the same year is zero, but Greta believes this is far from certain.

Using an annual correlation of 0.3, calculated the standard deviation of the rate of return on this investment if you have a project that has a 0.7 chance of doubling your investment in a year and a 0.3 chance of halving your investment in a year.

(Do not round intermediate calculations. Enter your answers as decimals rounded to 4 places.)

Standard deviation ________??

Reference no: EM131914886

Questions Cloud

Detremine what should the price of the bond be : A 15-year municipal bond was issued 5 years ago. Its coupon interest rate is 8%, interest payments are made semi-annually, and its face value is $1,000.
What will be the standard deviation of the rate of return : Consider the following information about a risky portfolio that you manage, and a risk-free asset: E(rP) = 15%, sP = 22%, rf = 5%.
For how much do the given free assets have to be sold : For how much do these free assets have to be sold so that the creditors associated with Debt 2 receive exactly $142,000?
Calculate the value of a bond which has 10 years : Calculate the value of a $1,000 bond which has 10 years until maturity and pays quarterly interest at an annual coupon rate of 12 percent.
Calculate the standard deviation : Greta, an elderly investor, has a degree of risk aversion of A = 3 when applied to return on wealth over a 3-year horizon.
What are the recommended solutions : What are the RECOMMENDED SOLUTIONS for the PROBLEMS that the organization TOYOTA is facing?
How much in the april income statement : How much revenue is recognized on the March income statement from this order? How much in the April Income statement?
What fraction of tires is expected to survive beyond : Broadtred, Inc. makes automobile tires that have a mean life of 50,000 miles with a standard deviation of 2,500 miles.
What information would you need to collect to determine : What suggestions would you propose (to the country, to the CME) to make hedging Central American cattle in the CME cattle contract?

Reviews

Write a Review

Financial Management Questions & Answers

  Foreign company acquisition

Acquisition by a foreign company and the effects of that decision and the results of foreign exchange in Euro and the exchange rate differences.

  Financial management for profit and non profit organizations

In this essay, we are going to discuss the issues of financial management in a non-profit organisation.

  Method for estimating a venture''s value

Evaluate venture's present value, cash and surplus cash and basic venture capital.

  Replacement analysis

This document show the Replacement Analysis of modling machine. Is replacement give profit to company or not?

  Business finance task - capital budgeting

Your company is considering using the payback period for capital-budgeting. Discuss the advantages and disadvantages of this technique.

  Analysis of the investment

In this project, you will focus on one of these: the additional cost resulting from the purchase of an apple press (a piece of equipment required to manufacture apple juice).

  Conduct a what-if analysis

Review the readings and media for this unit, including the Anthony's Orchard case study media. Familiarise yourself with the Anthony's Orchard company and its current situation.

  Determine operational expenditures

Organisations' behaviour is guided by financial data. In the short term, such data will help determine operational expenditures; in the long term, historical data may help generate forecasts aimed at determining strategic plans. In both instances.

  Personal financial management

How much will you have left over each half year if you adopt the latter course of action?

  Sources of finance for expansion into new foreign markets

A quoted company is considering several long-term sources of finance for expansion into new foreign markets.

  Long term financial planning

This assignment is designed for analyze Long term financial planning begins with the sales forecast and the key input in the long term fincial planning.

  Explain the role of fincial manager

This assignment explain the role of fincial manager, function of manger. And what are the motives of financial manager.

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd