On Page 26 of the paper "Risk Appetite: Linkage with Strategic Planning" , there is a simple example for asset allocation between bond and equity. The conclusion said that 20% risk-free assets need borrowed. But i think it's 10%.
Say, the portfolio value is 100. if we borrow 20 then total 120. 25% for bond, then bond value 30. the rest for equity, 90. So the return is,
30*0.05+90*0.09-20*0.03=1.5+8.1-0.6=9
return rate=9/100=9%<> required rate of 8.5%
Anyone see this example , what do you think?
Say, the portfolio value is 100. if we borrow 20 then total 120. 25% for bond, then bond value 30. the rest for equity, 90. So the return is,
30*0.05+90*0.09-20*0.03=1.5+8.1-0.6=9
return rate=9/100=9%<> required rate of 8.5%
Anyone see this example , what do you think?
A simple example for risk appetite and asset allocation
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