M.B. University had an endowment worth $100 million. Of this amount, $25 million was invested in treasury bills, and $75 million was invested in the market portfolio. By the following December 31, MBU had earned $2 million in interest and had received dividends of $3 million. These amounts were considered as income and used to pay the current expenses of the university. Except for rolling over treasury bills, no portfolio transactions were undertaken. Although on December 31, MBU’s portfolio still held the same number of shares in the market portfolio, the market value of these shares had declined to $60 million because of a general decline in stock prices.
M.B. University had an endowment worth $100 million. Of this amount, $25 million was invested in treasury bills, and $75 million was invested in the market portfolio. By the following December 31, MBU had earned $2 million in interest and had received dividends of $3 million. These amounts were considered as income and used to pay the current expenses of the university. Except for rolling over treasury bills, no portfolio transactions were undertaken. Although on December 31, MBU’s portfolio still held the same number of shares in the market portfolio, the market value of these shares had declined to $60 million because of a general decline in stock prices.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Chapter 8 #3 On January 1, M.B. University had an endowment worth $100 million. Of this amount, $25 million was invested in treasury bills, and $75 million was invested in the market portfolio. By the following December 31, MBU had earned $2 million in interest and had received dividends of $3 million. These amounts were considered as income and used to pay the current expenses of the university. Except for rolling over treasury bills, no portfolio transactions were undertaken. Although on December 31, MBU’s portfolio still held the same number of shares in the market portfolio, the market value of these shares had declined to $60 million because of a general decline in stock prices.
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- What was the expected annual
rate of return on MBU’s portfolio on January 1 and its standard deviation? - What was the actual rate of return earned?
- What was the expected annual
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