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HW 7 16. Madison would like to form a portfolio between Microsoft (Ticker: MSFT) and a...

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Finance

HW 7 16. Madison would like to form a portfolio betweenMicrosoft (Ticker: MSFT) and a bond index fund. The following tableshows the performance of the two assets in each state of theeconomy.

Prob. MSFT(%) Bond(%)

Recession          0.1     -40      12

Normal              0.7    20        6

Boom                0.2    50        -2

Suppose the standard deviation of Microsoft is 23.24% and thestandard deviation of the bond fund is 3.92%. Madison will form aportfolio which invests 40% into Microsoft and 60% into the bondfund.What is the standard deviation and sharpe ratio of theportfolio if risk-free rate is 4%?

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HW 7 16. Madison would like to form a portfolio betweenMicrosoft (Ticker: MSFT) and a bond index fund. The following tableshows the performance of the two assets in each state of theeconomy.Prob. MSFT(%) Bond(%)Recession          0.1     -40      12Normal              0.7    20        6Boom                0.2    50        -2Suppose the standard deviation of Microsoft is 23.24% and thestandard deviation of the bond fund is 3.92%. Madison will form aportfolio which invests 40% into Microsoft and 60% into the bondfund.What is the standard deviation and sharpe ratio of theportfolio if risk-free rate is 4%?

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