Asset class: large stocks, small stocks, foreign stocks, bonds, treasury bills
Expected return: 8.90%, 10.50%, 12.60%, 4.80%, 2.30%
Beta: 0.95, 1.20, 0.80, 0.40
Your client likes to keep things simple and would like to spread her $500,000 investment equally across all investments. What is the expected return and beta for her portfolio? How much in dollars is she expected to earn each year?
She is not happy with the number you got for her in part b since her retirement goal is $45,000 annually. What expected return is implied with the $45,000 annual return?
She is willing to take on more risk by reducing her allocation to "treasury bills" and increasing it in "small stocks". How much in dollars does she need to invest in "small stocks" to achieve her goal of earning $45,000 per year?