An investor has her $1 million portfolio invested in two different mutual funds as follows: $400,000 in a small-cap fund and $600,000 in a balanced fund. The small-cap fund has an expected return of 12% and a variance of 625, whereas the balanced fund has an expected return of 7% and a variance of 81. The covariance between the two funds is 122.
A. Find the investor's expected portfolio return.
B.Find the standard deviation for the investor’s portfolio.
C. Assuming the portfolio’s returns are normally distributed, find the range of returns that the investor is 95% confident her portfolio return will fall within.

Question

An investor has her $1 million portfolio invested in two different mutual funds as follows: $400,000 in a small-cap fund and $600,000 in a balanced fund. The small-cap fund has an expected return of 12% and a variance of 625, whereas the balanced fund has an expected return of 7% and a variance of 81. The covariance between the two funds is 122.
A. Find the investor's expected portfolio return.
B.Find the standard deviation for the investor’s portfolio.
C.	Assuming the portfolio’s returns are normally distributed, find the range of returns that the investor is 95% confident her portfolio return will fall within.

Quizplus · Accepted Answer

The Answer of An investor has her $1 million portfolio invested in two different mutual funds as follows: $400,000 in a small-cap fund and $600,000 in a balanced fund. The small-cap fund has an expected return of 12% and a variance of 625, whereas the balanced fund has an expected return of 7% and a variance of 81. The covariance between the two funds is 122.
A. Find the investor's expected portfolio return.
B.Find the standard deviation for the investor’s portfolio.
C.	Assuming the portfolio’s returns are normally distributed, find the range of returns that the investor is 95% confident her portfolio return will fall within.

An Investor Has Her $1 Million Portfolio Invested in Two