4. Suppose that there are 2 assets with ri 012 = 0.005. = 0.20, 01 = = 0.40, 2 = 0.10, 02 = 0.25 and (a) If ro = 0.02, what are the market portfolio return and variance? What are the corre- sponding weights (i.e. how much to invest in asset 1, asset 2, and the risk-free asset to get the market portfolio)? Answer. (b) If ro 0.05, what are the market portfolio return and variance? What are the corre- sponding weights? Answer.

4. Suppose that there are 2 assets with ri 012 = 0.005. = 0.20, 01 = = 0.40, 2 = 0.10, 02 = 0.25 and (a) If ro = 0.02, what are the market portfolio return and variance? What are the corre- sponding weights (i.e. how much to invest in asset 1, asset 2, and the risk-free asset to get the market portfolio)? Answer. (b) If ro 0.05, what are the market portfolio return and variance? What are the corre- sponding weights? Answer.

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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Similar questions

An efficient portfolio is one that: Select one: a. maximises return for a given level of risk. b. maximises risk for a given level of return. c. minimises risk for a given rate of return. d. Both A and C. are efficient portfolios.
The slope of the security market line is the: Group of answer choices reward-to-risk ratio portfolio weight beta coefficient risk-free interest rate market risk premium
Mean-variance expected utility is given by Eu = e-, where e is expected return, v is the variance of the portfolio and tis risk tolerance. Suppose an investor has risk-loving preferences. What can we say about the value of t? Select one: Ot1 O. t>0 O t=0
4. Explain what the Capital Asset Pricing Model (CAPM) is and calculate and explain the result of the CAPM based on the following data. a. Expected Return: 8% b. Risk-free rate: 4% c. Beta of the investment: 1.2 ER=Rf+B(ERm - Rf) where: ER = expected return of investment Rf risk-free rate B;= beta of the investment - (ERm - Rf) = market risk premium
Baghiben
At a minimum, which of the following would you need to know to estimate the amount of additional reward you will receive for purchasing a risky asset instead of a risk-free asset? 1. I. Asset's standard deviation 2. II. Asset's beta 3. III. Risk-free rate of return 4. IV. Market risk premium I, III, and IV only I, II, III, and IV I and III only II and IV only III and IV only ооо O
If you plot the relationship between portfolio expected return and portfolio beta, what is the slope of the line that results? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) | Slope of the line %
Draw the profit diagram of the portfolio just drawn (and clearly state any assumptions you make). The profit is equal to the difference between the payoff of the portfolio at expiry (maturity) date and the cost of the portfolio. Is the cost of the portfolio positive?
Bhagi
Suppose you have an investment portfolio with fraction x invested in a market portfolio and (1-x) in a risk- free asset. Increasing fraction x invested in the market portfolio and consequently decreasing (1-x) invested in the risk-free asset shall (select any correct answer, if there are multiple correct answers) Select one or more: O decrease the Sharpe ratio of the resulting portfolio O decrease the expected return of the resulting portfolio increase the Sharpe ratio of the resulting portfolio increase the expected return of the resulting portfolio Dincrease the risk of the resulting portfolio
3. A market consists of two risky assets and no risk-free asset. Let R₁ and R₂ denote the return on each of the risky assets. Using market data the following have been estimated: E[R₁] = 0.10, E[R₂] = 0.15, o² = Var(R₁) = 0.1², o² = Var(R₂) = 0.2² and p1,2 = -1/2 where P1,2 denotes the correlation coefficient for R₁ and R₂. (i) Given that an investor is targeting a total expected return of portfolio, what is the minimum variance that can be achieved? = 0.125 on a (ii) Determine the global minimum variance portfolio and the expected return and variance of return on this portfolio. (iii) Using your answers to parts (i) and (ii) make a rough sketch of the minimum- variance set in - o2 space. You should indicate the efficient frontier and the global minimum variance portfolio. (iv) Without further calculation, explain how you would expect the variance of return calculated in (ii) to change if the two risky assets were independent.
The following expected return and the standard deviation of current returns are known: Security (i) Expected Return Standard Deviation βi A 0.20 0.12 1.1 B 0.12 0.10 0.8 T-Bills 0.05 0 0 Market Portfolio 0.20 0.15 1 Required: Determine which of A or B is over-valued or undervalued.

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