anonymous
  • anonymous
Suppose you have some money to invest = for simplicity, $1 - and you are planning to put a fraction w into a stock market mutual fund and the rest , 1- w, into a bond mutual fund. Suppose that $1 invested in a stock fund yields Rs after 1 year and that $1 invested in a bond fund yields Rb, suppose that Rb is random with means 0.05 (5%) and standard deviation 0.04. The correlation between Rs and Rb is 0.25. If you place a fraction w of your money in the stock market and the rest, 1 - w, in the bond fund, then the return on your investment is R= wRs + (1 - w)Rb.
Mathematics
schrodinger
  • schrodinger
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anonymous
  • anonymous
A. Suppose that w = 0.5. COmputer the mean and stdv. of R. B. Suppose that w = .75. COmputer the mean and stdv of R. C. What value of w makes the mean of R as large as possible? What is the standard deviation of R for this value of w? D. What is the value of w that minimizes the standard deviation of R?
tkhunny
  • tkhunny
No, that may describe the DISTRIBUTION of your potential investment, but it is not "the investment". Okay, let's see your work.
anonymous
  • anonymous
First immediate question, is what does the correlation mean?... maybe obvious sorry if it is.

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