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Using the following table to answer the question below. If you’re A = 6 and you...

Using the following table to answer the question below. If you’re A = 6 and you think the future will be like the 1926-1946 period, what % of your investments should be in the S&P 500?

time S&P500 ret. T-bill ret. Std. dev.
1926-2012 11.67% 3.58% 20.48%
1989-2012 11.1% 3.52% 18.22%
1968-1988 10.91% 7.48% 16.71%
1947-1967 15.35% 2.28% 17.66%
1926-1946 9.4% 1.04% 27.95%
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Answer #1

A = 6

S&P return = 9.4%

T-bill return = 1.04%

SD = 27.95%

% of your investment in S&P500 = (9.4% - 1.04%)/ (6 * 27.95%2)

% of your investment in S&P500 = 0.1784

% of your investment in S&P500 = 17.84%

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