1) You are considering investing $1,900 in a complete portfolio. The complete portfolio is composed of Treasury bills that pay 3% and a risky portfolio, P, constructed with two risky securities, X and Y. The optimal weights of X and Y in P are 65% and 35% respectively. X has an expected rate of return of 15%, and Y has an expected rate of return of 10%. To form a complete portfolio with an expected rate of return of 6%, you should invest approximately in the risky portfolio. This will mean you will also invest approximately and of your complete portfolio in security X and Y, respectively. A) 0%; 65%; 35% B) 25%; 50%; 25% C) 50%; 33%; 18% D) 29%; 19%; 10%

1) You are considering investing $1,900 in a complete portfolio. The complete portfolio is composed of Treasury bills that pay 3% and a risky portfolio, P, constructed with two risky securities, X and Y. The optimal weights of X and Y in P are 65% and 35% respectively. X has an expected rate of return of 15%, and Y has an expected rate of return of 10%. To form a complete portfolio with an expected rate of return of 6%, you should invest approximately in the risky portfolio. This will mean you will also invest approximately and of your complete portfolio in security X and Y, respectively. A) 0%; 65%; 35% B) 25%; 50%; 25% C) 50%; 33%; 18% D) 29%; 19%; 10%

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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Consider the single factor APT. Portfolio A has a beta of 1.5 and an expected return of 20 %. Portfolio B has a beta of 0.7 and an expected return of 16%. The risk - free rate of return is 8%. If you wanted to take advantage of an arbitrage opportunity, you should take a short position in portfolio and a long position in portfolio
K You manage a risky portfolio with an expected rate of return of 10% and a standard deviation of 37%. The T-bill rate is 4%. Your client chooses to invest 80% of a portfolio in your fund and 20% in a T-bill money market fund. What is the reward-to-volatility (Sharpe) ratio (S) of your risky portfolio? Your client's? Note: Do not round intermediate calculations. Round your answers to 4 decimal places. Your reward-to-volatility (Sharpe) ratio Client's reward-to-volatility (Sharpe) ratio
Consider a risky portfolio. The end-of-year cash flow derived from the portfolio will be either $150,000 or $290,000 with equal probabilities of 0.5. The alternative risk-free investment in T-bills pays 3% per year. Required: a. If you require a risk premium of 7%, how much will you be willing to pay for the portfolio? b. Suppose that the portfolio can be purchased for the amount you found in (a). What will be the expected rate of return on the portfolio? c. Now suppose that you require a risk premium of 12%. What price are you willing to pay? Complete this question by entering your answers in the tabs below. Required A Required B Required C If you require a risk premium of 8%, how much will you be willing to pay for the portfolio? Note: Do not round your intermediate calculations. Round your answer to the nearest whole dollar amount. Price Required A Required B >
You manage a risky portfolio with an expected rate of return of 10% and a standard deviation of 34%. The T-bill rate is 4%. Suppose that your client prefers to invest in your fund a proportion y that maximizes the expected return on the complete portfolio subject to the constraint that the complete portfolio's standard deviation will not exceed 10%. Required: a. What is the investment proportion, y? b. What is the expected rate of return on the complete portfolio?
You manage a risky portfolio with an expected rate of return of 10% and a standard deviation of 33%. The T-bill rate is 2%. Your client chooses to invest 75% of a portfolio in your fund and 25% in an essentially risk-free money market fund. What are the expected return and standard deviation of the rate of return on his portfolio? Note: Round your answers to 2 decimal places. Expected return Standard deviation % %
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1. Suppose you have n risky assets you can combine in a portfolio. Each risky asset has an expected return of 8% and a standard deviation of 30%. The risky assets are uncorrelated with each other. (a) Consider an equally weighted portfolio of 2 of these securities. What is its expected return? What will its standard deviation be? (b) Consider an equally weighted portfolio of 30 of these securities. What is its expected return? What will its standard deviation be? (c) Suppose we let the number of these securities increase without bound. That is, n→ ∞o. What happens to the standard deviation of an equally weighted portfolio of these securities as the number of assets in the portfolio becomes extremely large? What will the riskless rate be in this case, and why? -int IDE
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