Modern Business Statistics with Microsoft Office Excel (with XLSTAT Education Edition Printed Access Card) (MindTap Course List)
6th Edition
ISBN: 9781337115186
Author: David R. Anderson, Dennis J. Sweeney, Thomas A. Williams, Jeffrey D. Camm, James J. Cochran
Publisher: Cengage Learning
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Textbook Question
Chapter 5.4, Problem 30E
In addition to the information in exercise 29 on the S&P 500 and core bonds, J.P. Morgan Asset Management reported that the expected return for real estate investment trusts (REITs) was 13.07% with a standard deviation of 23.17% (J.P. Morgan Asset Management, Guide to the Markets, 1st quarter, 2012). The
- a. Using the information provided here and in exercise 29, determine the
covariance between the S&P 500 and REITs and between core bonds and REITs. - b. Construct a portfolio that is 50% invested in an S&P 500 fund and 50% invested in REITs. In percentage terms, what are the expected return and standard deviation for such a portfolio?
- c. Construct a portfolio that is 50% invested in a core bonds fund and 50% invested in REITs. In percentage terms, what are the expected return and standard deviation for such a portfolio?
- d. Construct a portfolio that is 80% invested in a core bonds fund and 20% invested in REITs. In percentage terms, what are the expected return and standard deviation for such a portfolio?
- e. which of the portfolios in parts (b), (c), and (d) would you recommend to an aggressive investor? which would you recommend to a conservative investor? why?
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Vanguard's Precious Metals and Mining fund (Metals) and Fidelity's Strategic Income fund (Income) were two top-performing mutuals funds for the years 2000 through 2009. An analysis of annual return data for these two funds provided important information for anytype of investor. Over the past 10 years, the Metals fund posted a mean return of 24.65% with a standard deviation of 37.13%. On the other hand, the mean and the standard deviation of return for the Income fund were 8.51% and 11.07%, repectively. It is reasonable to assume that the returns of the Metals and the Income funds are both normally distributed, where the means and the standard deviations are derived from the 10-year sample period.
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J.P. Morgan Asset Management publishes information about financial investments. Over the past 10 years, the expected return for a core bonds fund was 5.78% with a standard deviation of 2.13%.†
J.P. Morgan Asset Management also reported that the expected return for real estate investment trusts (REITs) was 13.07% with a standard deviation of 23.17%. The correlation between core bonds and REITs is −0.04. (Past performance is no guarantee of future results.)
You are considering portfolio investments that are composed of a core bonds fund and REITs.
a. Using the information provided, determine the covariance between core bonds and REITs. (Round your answers to three decimal places.)
covariance =
b. Construct a portfolio that is 50% invested in a core bonds fund and 50% invested in REITs. In percentage terms, what are the expected return and standard deviation for such a portfolio? (Round your answer for the standard deviation to two decimal places.)
expected return =
standard deviation =…
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Chapter 5 Solutions
Modern Business Statistics with Microsoft Office Excel (with XLSTAT Education Edition Printed Access Card) (MindTap Course List)
Ch. 5.1 - 1. Consider the experiment of tossing a coin...Ch. 5.1 - 2. Consider the experiment of a worker assembling...Ch. 5.1 - 3. Three students scheduled interviews for summer...Ch. 5.1 - Prob. 4ECh. 5.1 - 5. To perform a certain type of blood analysis,...Ch. 5.1 - 6. Listed is a series of experiments and...Ch. 5.2 - 7. The probability distribution for the random...Ch. 5.2 - 8. The following data were collected by counting...Ch. 5.2 - 9. For unemployed persons in the United States,...Ch. 5.2 - 10. The percent frequency distributions of job...
Ch. 5.2 - 11. A technician services mailing machines at...Ch. 5.2 - 12. Time Warner Cable provides television and...Ch. 5.2 - 13. A psychologist determined that the number of...Ch. 5.2 - Prob. 14ECh. 5.3 - 15. The following table provides a probability...Ch. 5.3 - 16. The following table provides a probability...Ch. 5.3 - 17. During the summer of 2014, Coldstream Country...Ch. 5.3 - 18. The American Housing Survey reported the...Ch. 5.3 - 19. West Virginia has one of the highest divorce...Ch. 5.3 - 20. The probability distribution for damage claims...Ch. 5.3 - 21. The following probability distributions of job...Ch. 5.3 - 22. The demand for a product of Carolina...Ch. 5.3 - 23. In Gallup’s Annual Consumption Habits Poll,...Ch. 5.3 - Prob. 24ECh. 5.4 - 25. Given below is a bivariate distribution for...Ch. 5.4 - 26. A person is interested in constructing a...Ch. 5.4 - 27. The Chamber of Commerce in a Canadian city has...Ch. 5.4 - 28. PortaCom has developed a design for a...Ch. 5.4 - 29. J.P. Morgan Asset Management publishes...Ch. 5.4 - 30. In addition to the information in exercise 29...Ch. 5.5 - 31. Consider a binomial experiment with two trials...Ch. 5.5 - Prob. 32ECh. 5.5 - 33. Consider a binomial experiment with n = 20 and...Ch. 5.5 - 34. For its Music 360 survey, Nielsen Co. asked...Ch. 5.5 - 35. The Center for Medicare and Medical Services...Ch. 5.5 - 36. When a new machine is functioning properly,...Ch. 5.5 - 37. According to a 2013 study by the Pew Research...Ch. 5.5 - 38. Military radar and missile detection systems...Ch. 5.5 - 39. Market-share-analysis company Net Applications...Ch. 5.5 - 42. A Gallup Poll showed that 30% of Americans are...Ch. 5.5 - Tracked Emails. According to a 2017 Wired magazine...Ch. 5.6 - 44. Consider a Poisson distribution with μ =...Ch. 5.6 - 45. Consider a Poisson distribution with a mean of...Ch. 5.6 - 46. Phone calls arrive at the rate of 48 per hour...Ch. 5.6 - 47. During the period of time that a local...Ch. 5.6 - Prob. 48ECh. 5.6 - 49. Airline passengers arrive randomly and...Ch. 5.6 - 50. According to the National Oceanic and...Ch. 5.6 - 51. Over 500 million tweets are sent per day...Ch. 5.7 - 52. Suppose N = 10 and r = 3. Compute the...Ch. 5.7 - Prob. 53ECh. 5.7 - 54. A recent survey showed that a majority of...Ch. 5.7 - 55. Blackjack, or twenty-one as it is frequently...Ch. 5.7 - 56. Axline Computers manufactures personal...Ch. 5.7 - 57. The Zagat Restaurant Survey provides food,...Ch. 5.7 -
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- J. P. Morgan Asset Management publishes information about financial investments. Between 2002 and 2011 the expected return for the S&P 500 was 5.04% with a standard deviation of 19.45% and the expected return over that same period for a Core Bonds fund was 5.78% with a standard deviation of 2.13% (J. P. Morgan Asset Management, Guide to the Markets). The publication also reported that the correlation between the S&P 500 and Core Bonds is -0.32. You are considering portfolio investments that are composed of an S&P 500 index fund and a Core Bonds fund.arrow_forwardIn addition to the information in exercise 29 on the S&P 500 and core bonds, J.P. Morgan Asset Management reported that the expected return for real estate investment trusts(REITs) was 13.07% with a standard deviation of 23.17% (J.P. Morgan asset Management, guide to the Markets, 1st quarter, 2012). The correlation between the S&P 500 andREITs is .74 and the correlation between core bonds and REITs is −.04. You are considering portfolio investments that are composed of an S&P 500 index fund and REITs as wellas portfolio investments composed of a core bonds fund and REITs.a. Using the information provided here and in exercise 29, determine the covariancebetween the S&P 500 and REITs and between core bonds and REITs.b. Construct a portfolio that is 50% invested in an S&P 500 fund and 50% invested inREITs. In percentage terms, what are the expected return and standard deviation forsuch a portfolio?c. Construct a portfolio that is 50% invested in a core bonds fund and…arrow_forwardJ. P. Morgan Asset Management publishes information about financial investments. Between 2002 and 2011 the expected return for the S&P 500 was 5.04% with a standard deviation of 19.45% and the expected return over that same period for a Core Bonds fund was 5.78% with a standard deviation of 2.13% (J. P. Morgan Asset Management, Guide to the Markets). The publication also reported that the correlation between the S&P 500 and Core Bonds is -0.32. You are considering portfolio investments that are composed of an S&P 500 index fund and a Core Bonds fund. a. Using the information provided, determine the covariance between the S&P 500 and Core Bonds. Round your answer to two decimal places. If required enter negative values as negative numbers. b. Construct a portfolio that is 50% invested in an S&P 500 index fund and 50% in a Core Bond fund. Let x represent the S&P 500 and y represent the Core Bond fund. Round your answers to one decimal place. r 3= In percentage terms, what is the expected…arrow_forward
- In addition to the information in exercise 29 on the S&P 500 and core bonds, J.P. Morgan Asset Management reported that the expected return for real estate investment trusts(REITs) was 13.07% with a standard deviation of 23.17% (J.P. Morgan asset Management, guide to the Markets, 1st quarter, 2012). The correlation between the S&P 500 andREITs is .74 and the correlation between core bonds and REITs is −.04. You are considering portfolio investments that are composed of an S&P 500 index fund and REITs as wellas portfolio investments composed of a core bonds fund and REITs.a. Using the information provided here and in exercise 29, determine the covariancebetween the S&P 500 and REITs and between core bonds and REITs.arrow_forwardSuppose portfolio mean return is 25% and standard deviation 30%. Find the 2 standard deviation range. Now you wish to estimate the portfolio's fifth-percentile VaR (the value below which lie 5% of the returns). Will the 5% VaR be greater or less than -30%? Please show your work:arrow_forwardA researcher has found a strong relationship between level of education and income and concludes that “higher levels of education cause higher income.” What error has been made?arrow_forward
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- An investment counselor, Anna Lynn, wonders if the Metals fund is significantly riskier than the Income fund. She randomly selected 10 investors ( n1 ) of buying Metals fund and 12 investors ( n2 ) of buying Income fund. The average return of Metals fund ( x1 ) is 24.65% while the average return of Income fund ( x2 ) is 8.51%. In addition, the standard deviation of return for Metal fund ( s1 ) is 37.13% while the standard deviation of return for Income fund ( s2 ) is 11.07%. Let investors of buying Metals fund be group 1 while investors of buying Income fund be group 2. a. Use math symbol to formulate null and alternative hypotheses to test whether or not the Metals fund is significantly riskier than the Income fund. b. At the 0.05 level of significance, what is the value of the test statistic? What are degrees of freedom? What is the critical value? Using the critical value approach, is the Metalsfund is significantly riskier than the Income fund? What is your conclusion? Interpret.arrow_forwardAn investment counselor, Anna Lynn, wonders if the Metals fund is significantly riskier than the Income fund. She randomly selected 10 investors ( n1 ) of buying Metals fund and 12 investors ( n2 ) of buying Income fund. The average return of Metals fund ( x1 ) is 24.65% while the average return of Income fund ( x2 ) is 8.51%. In addition, the standard deviation of return for Metal fund ( s1 ) is 37.13% while the standard deviation of return for Income fund ( s2 ) is 11.07%. Let investors of buying Metals fund be group 1 while investors of buying Income fund be group 2. A. Using a 0.05 level of significance and the p-value approach, what is the p-value? And what is your conclusion? Interpret (without calculation process, interpretation, and conclusion, narrow_forwardRisk taking is an important part of investing. In order to make suitable investment decisions on behalf of their customers, portfolio managers give a questionnaire to new customers to measure their desire to take financial risks. The scores on the questionnaire are approximately normally distributed with a mean of 50.5 and a standard deviation of 16. The customers with scores in the bottom 5% are described as "risk averse. What is the questionnaire score that separates customers who are considered risk averse from those who ar not? Carry your intermediate computations to at least four decimal places. Round your answer to one decimal place. U Continue X S Submit Terms of Use | Privacy Centerarrow_forward
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