11. Maxine wants to choose a portfolio of assets to maximize her expected utility. Her utility function is u = Her five choices are as follows: In one year portfolio A will be worth 49 with probability .6 or 64 with probability .4; portfolio B will be worth 36 with probability .6 or 81 with probability .4; portfolio C will be worth 25 with probability .6 or 100 with probability .4; portfolio D will be worth 16 with probability .5 or 121 with probability .5; portfolio E will be worth 4 with probability .5 or 144 with probability .5. Her most preferred portfolio is Vw, where w denotes her wealth in one year. (а) А

11. Maxine wants to choose a portfolio of assets to maximize her expected utility. Her utility function is u = Her five choices are as follows: In one year portfolio A will be worth 49 with probability .6 or 64 with probability .4; portfolio B will be worth 36 with probability .6 or 81 with probability .4; portfolio C will be worth 25 with probability .6 or 100 with probability .4; portfolio D will be worth 16 with probability .5 or 121 with probability .5; portfolio E will be worth 4 with probability .5 or 144 with probability .5. Her most preferred portfolio is Vw, where w denotes her wealth in one year. (а) А

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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After learning the course, you divide your portfolio into three equal parts (i.e., equal market value weights), with one part in Treasury bills, one part in a market index, and one part in a mutual fund with beta of 0.8. What is the beta of your overall portfolio?
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10.3 Refer to Exhibit 10.2. a. Construct an equal-weighted (50/50) portfolio of investments B and C. What are the expected rate of return and standard deviation of the portfolio? Explain your results. b. Construct an equal-weighted (50/50) portfolio of investments B and D. What are the expected rate of return and standard deviation of the portfolio? Explain your results.
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Benefits of diversification. Sally Rogers has decided to invest her wealth equally across the following three assets: a. What are her expected returns and the risk from her investment in the three assets? How do they compare with investing in asset M alone? Hint Find the standard deviations of asset M and of the portfolio equally invested in assets M, N, and O. b. Could Sally reduce her total risk even more by using assets M and N only, assets M and O only, or assets N and O only? Use a 50/50 split between the asset pairs, and find the standard deviation of each asset pair. a. What is the expected return of investir 8.40% (Round to two decimal places.) What is the expected return of investing % (Round to two decimal places.) Data table (Click on the following icon in order to copy its contents into a spreadsheet.) States Probability 35% Asset M Return 10% Boom Normal 54% 7% Recession 11% -2% Asset N Return 21% 12% 1% Asset O Return - 2% 7% 10% X
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Sally has investments with the following characteristics in her portfolio: Investment in Beta Amount invested Stock Q 1.5 $80,000 Stock R 2.0 $50,000 Stock S 0.85 $70,000 Given the risk free rate of 2% and the market return of 7%, what is the expected rate of return of Sally’s investment portfolio?
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