Impossible problem (finance), can you solve it?
I have tried to numeral this one out and i just can't. Please aid me if you know, thank you."Assume that you manage a risky portfolio next to an expected rate of return of 17% and a standard deviation of 27%. the t-bill rate is 7%. Your client chooses to invest 70% of a portfolio in your fund and 30% surrounded by a T-bill money market fund. What is the expected return and standard deviation of your client's portfolio?"
How do you show how this is done? I'm stumped!
Answers: t-bills should hold no deviation.. pretty much, you're getting the 7% on 30% of their portfolio (.07 * .3 = .021 | 2.1%)
now, the other 70% of their portfolio will get hold of 17% (.7 * .17 = .119 | 11.9% )
so between the two investments, the rate of return will be 14%...
now for the deviation... 70% of the investment have a standard deviation of 27% ... it could lose 10% up to gaining 44% so for the overall portfolio, it could lose .7 * .10 = -7%, or it could gain .7 * .44 = 30.8%
those returns are 37.8% apart, divide that by two, and you return with 18.9% deviation for the overall portfolio (oh, look. 18.9% is 27 * .7 !! )
so, the porfolio will earn 14%, standard deviation 18.9%... that's my guess!
E(return)=17%*70%+7%*30%
=14%
What's the standard deviation of the T-bill? Is it zero?
Portfolio variance = (standard deviation)^2
Let's use 'O' for standard deviation...
Portfolio variance = (Wa)^2(Oa)^2 + (Wb)^2(Ob)^2 + 2(Wa)(Wb)(Oa)(Ob)(Pab)
Wa = Weight of investment 'a'
Wb = Weight of investment 'b'
Oa = Standard Dev. of investment 'a'
Ob = Standard Dev. of investment 'b'
Pab = Correlation coefficient of investments a & b
Considering that the T-bill is considered risk-free, the standard deviation is 0.
After multiplying the first and ultimate section times 0(because Oa equals 0) you enjoy left: (Wb)^2(Ob)^2
But remember that portfolio variance = O^2 ; so to find standard deviation you use:
1) Sq.rt.[(Wb)^2(Ob)^2]
2) which equals (Wb)(Ob)
3) plug contained by the numbers: (.7)(.27)
4) = 18.9%
I know that this answer is extensive, but you will be using this same formula for portfolio variance and standard deviation of a portfolio when a risk-free rate is not involved.
I wonder what the coming recession will look close to?
remember, they say we are within a recession if we have 6 consecutive month of glum growth, we haven't had even enjoy one negative growth month nonetheless, only slower growth so far, does that be set to that instead of a recession we head straight into a recession?Answers: The US system is not using the Recession word (yet). They're saying slower growth, not recession.
Usually by the time race realize we're in a recession, we've already be in it for several months.
So it's possible we're already contained by one.
Or not.
The problem right now isnt singns of a recession but the crisis some bank and insurance that have to cover them. Think of the discount as a car and the gas as growth. When you are out of gas your coup¨¦ gets surrounded by a recession and you wont be where you want to be in good time. Well you have at least possible 2 tires down, itll all depend immediately on how fast you can fix them.
Other than TD Waterhouse, what are some other places I can use to trade stocks in Canada?
Answers: Interactive Brokers
http://www.interactivebrokers.ca/en/main...
Bank of Montreal's BMO Investor Online
https://www.bmoinvestorline.com/
QuestTrade
http://www.questrade.com/
Royal Bank of Canada
http://www.rbcdirectinvesting.com/
Bank of Nova Scotia
http://www.scotiabank.com/cda/content/0,...
etrade
also, every bank has brokerage operations
I would suggest http://www.credentialdirect.com
They are owned by the Credit Unions, and they have been rated the best 4 times in a row. I have an account with them and I find them to have the lowest fees and great customer service. Highly recommended!
I also include this link http://www.surviscor.com/scorview/2007Su...
This is the review and score card of all online stock brokers in Canada.