142Part TWO Portfolio TheoryFor Problems 12-16, assume that you manage a risky portfolio with an expected rate ofreturn of 17% and a standard deviation of 27%. The T-bill rate is 7%.12. Your client chooses to invest 70% of a portfolio in your fund and 30% in a T-billmarket fund. (LO 5-3)a. What are the expected return and standard deviation of your client's portfolio?b. Suppose your risky portfolio includes the following investments in the givenproportions:money27%Stock AStock B33Stock C40your client's overall portfolio.I

Sure, let's break down each part:a. Calculating the expected return of the client's portfolio:We're…

Answered: 142 Part TWO Portfolio Theory For…

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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Question 2 You invest $1,000,000 in a complete portfolio. The complete portfolio is composed of a risky portfolio with an expected rate of return of 16% and a standard deviation of 20%, and a T-bill with an expected rate of return of 7%. Required: You choose to invest $700,000 of your investment budget in the risky portfolio and the remaining in the T-bill. a) What are the expected return and standard deviation of your complete portfolio? b) Suppose your risky portfolio includes the following investments in the given proportions: Stock A: 40% Stock B: 60% What are the dollar values of your investment in each stock in the risky portfolio? c) What is the Sharpe ratio (S) of your complete portfolio? d) Draw the capital allocation line (CAL) of your complete portfolio on an expected return/standard deviation diagram. Suppose you decide to invest in the risky portfolio a proportion (y) of your total investment budget so that your complete portfolio will have an expected rate of return of…
INV 2 -1b You are considering an investment in a portfolio P with the following expected returns in three different states of nature: Recession Steady Expansion Probability 0.10 0.55 0.35 Return on P -15% 20% 40% The risk-free rate is currently 4%, and the market portfolio M has an expected return of 16% and standard deviation of 20%, and its correlation with P is .7. What is the portfolio P’s beta?
2 Problem 2: Consider a market composed of only two risky assets, A and B, with the following properties: a StockA Expected return 25%, SD 20% StockB Expected return 15%, SD 25% a) Suppose their correlation is 0.8. What is the expected return of the following portfolios: one that invests 0% in A, one that invests 10% in A, 20% in A and so on until 100%? Plot the portfolio frontier formed by these portfolios.b) Repeat part (1) under the assumption that the correlation is -0.8.c) Explain in detail what is the intuition behind the difference across the answers you found for part (1) and part (2).
INV 1 4a You have invested in a portfolio of 60% in risky assets (Portfolio R) and 40% in T-bills. The risky portfolio is described below: E(rR)=12% σR =15% If the T-bill rate is 3%, what is the expected return on your overall portfolio, including both portfolio R and the T-bills?
14?
p 19 A portfolio analyst has been asked to allocate investment funds among three different stocks. The relevant data for the stocks is shown in the following table f the goal is to maximize return while maintaining risk within acceptable bounds (in this case, a portfolio standard deviation of no more than 20%, find the proper allocation of the funds to each stock O Ak Risk (Standard Deviation to 5) 25% 12% 10% What is the expected retum of the optimal stock portfolio? Stock A B C O Multiple Choice O Return (R) 20% O 10% 15% 17.9% 15 15 19.15 36.4% Pair of Stocks A to B A to C to C Help Joint Risk (Covariance) 0.05 0.075 -0.05 Save & Exit Submit
23. What return should be expected from investing in the market portfolio that is expected to yield 18% if the investment includes all of the investor's funds plus 30% additional funds borrowed at the risk-free rate of 6%? A. 18.6% B. 19.6% C. 21.6% D. 24.0%
quiz 8-15
✓ Question 4 FI Two assets, Q & R, each have an expected return of 11.75%. Asset Q's standard deviation is 13% and Asset R's standard deviaion is 13.2%. A rational investor will choose: A. Either asset R or asset Q. B. Asset R. C. Asset Q. Question 5 Answers: 2 An investor whose portfolio is not diversified is subject to: Answers: A. systematic risk. Thursday, June 30, 2022 2:15:10 AM EDT W 4+ *3 B. non-systematic risk. C. both systematic risk and non-systematic risk. E $ 4 F4 R с F5 % 5 T F6 6 H Y F7 & 7 F8 U * 00 8 F9 81 L ( 9 F10 - F11 0 *+ F12 P PrtSc [ # 0 c Del Ba
Question 4?
3. Problem 8.07 (Portfolio Required Return) BA eBook Problem Walk-Through Suppose you are the money manager of a $5.02 million investment fund. The fund consists of four stocks with the following investments and betas: Investment $ 260,000 600,000 1,560,000 2,600,000 с D If the market's required rate of return is 12% and the risk-free rate is 5%, what is the fund's required rate of return? Do not round intermediate calculations. Round your answer to two decimal places. % Stock A B Beta 1.50 (0.50) 1.25 0.75
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