Can you please help? You have a portfolio with an asset allocation of 32 percent
ID: 2706982 • Letter: C
Question
Can you please help?
You have a portfolio with an asset allocation of 32 percent stocks, 56 percent long-term Treasury bonds, and 12 percent T-bills. Use these weights and the returns is given in the above table to compute the return of the portfolio in the year 2000 and each year since. Then compute the average annual return and standard deviation of the portfolio. (Negative answers should be indicated with a minus sign. Do not round intermediate calculations and round your final answers to 2 decimal places.)
Annual Returns for Stocks, Bonds, and T-Bills 2000 to 2009
Explanation / Answer
Please find below the table:
The portfolio return for 2000 for example is calculated as 0.32*-9.1%+0.56*20.1%+0.12*5.9% = 9.05%. Similarly for the other years.
Average annual return is the arithmetic average of all the yearly returns.
Standard deviation is square root of variance
Variance is equal to = [(9.05%-5.11%)^2+(-0.81%-5.11%)^2+(2.75%-5.11%)^2+...(0.71%-5.11%)]/10 = 0.001321
Standard deviation = square root of 0.32% = 3.63%.
Hope this helped ! Let me know in case of any queries.
Portfolio return 2000 9.05% 2001 -0.81% 2002 2.75% 2003 10.48% 2004 7.97% 2005 5.58% 2006 6.68% 2007 7.14% 2008 1.53% 2009 0.71% Average annual return 5.11% Standard deviation 3.63%