6. Portfolio Theory (15 pts Large Cap Stock Real Estate FundRisk-free Asset Expe

Question

6. Portfolio Theory (15 pts Large Cap Stock Real Estate FundRisk-free Asset Expected Return Variance Standard Deviation Fund 12% 0.0400 0.20 20% 0.0625 0.25 2% Covariance Matrix Large Cap 0.0400 0.0300 Real Estate 0.0300 0.0625 Large Cap Real Estate i) Calculate the expected return and variance for the portfolio with 50% of your money invested in the Large Cap Fund and 50% of your money invested in the Real Estate Fund. Exp. Return- ariance ii) Calculate the expected return and variance for the portfolio with 20% of your money invested in the risk-free asset and 80% of your money invested in the Real Estate Fund. Exp. Return ariance

Explanation / Answer

ii)

106

Possible return Probability Expected Return Large Cap Fund 12% 0.5 6% Real Estate Fund 20% 0.5 10% Expected Return 16%

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