10.00 points You have $380,000 invested in a well-diversified portfolio. You inh

Question

10.00 points You have $380,000 invested in a well-diversified portfolio. You inhenit a house that is presently worth $170,000. Consider the summary measures in the following table Old portfolio House 8% 15% 8% 17% The correlation coefficient between your portfolio and the house is 0.48. a. What is the expected return and the standard deviation of your portfolio comprising your old portfolio and the house? (Do not round intermediate calculations. Round your final answers to 2 decimal places-) 10.171% Expected return Standard deviation b. Suppose you decide to sell the house and use the proceeds of $170,000 to buy risk-free T-bills that promise a 11% rate of return Calculate the expected return and the standard deviation of the resulting portfolio (Hint Note that the correlation between any asset and the risk-free T-bills is zero) (Do not ound intermediate calculations. Round your final answers to 2 decimal places.) Expected retum Standard deviation

Explanation / Answer

Proportion in portfolio = 17/55 = 0.309

Proportion in house = 38/55= 0.691

Standard deviation = Sqrt( 0.691^2 *0.08^2+ 0.309^2* 0.17^2 +2*0.309*0.691*0.08*0.17)=10.78%

b)

Expected return = 0.691*8 + 0.309*11 = 8.927

Standard deviation = 0.691*8 = 5.528

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