1. Assume you have $1,000,000 invested in the Vanguard 500 Index Fund. - You expect to earn 12% per annum with a standard deviation of 25%. - Becoming more risk averse, you decide to shift $200,000 from the fund into treasury bills which currently yield 5%. Current Expected Standard Asset Portfolio Return Deviation Weights Treasury bills 10 5% 0% 5% Vanguard 500 Index Fund 200 12% 25% 95% Total 210 12% 23.8% 100%
2. A project has an initial cost of $27,000 and a three year life. The company uses straight line depreciation to a book value of zero over the life of the project. The project net income from the projects is $1,600, $2,200, and $1,700 a year for the next three years, respectively. What is the average accounting return?