A diagram of the CML and SML for the market M, risk-free asset ry, an inefficient portfolio P, and acomplete portfolio C is shown below. The diagram is not to scale.E(r)E(13)CML & CALPE(12)PCE(r)M010203PβρSMLMВмThe values of the labeled variables are E[1] = 3.0%, E[12] = 10.3%, E[3] = 16.7%, σ₁ = 17.9%, σ = 30.0%,03 = 44.3%. What is the standard deviation of nonsystematic risk for the complete portfolio σc under theCAPM?O a. 0.1374O b. 0.1180O c. 0.0988d. 0.1105O e. 0.0791O f. 0.0913Og. 0.0858O h. 0.1443

Here's a detailed explanation for better understanding. Given DataWe need to find the standard…

Answered: A diagram of the CML and SML for the…

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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You are given the following information concerning three portfolios, the market portfolio, and the risk- free asset: Portfolio X Y Z Market Risk-free Rp 14.5% R-squared 13.5 9.1 10.7 5.4 op 36% 31 21 26 0 6p 1.60 1.30 .80 1.00 0 Assume that the correlation of returns on Portfolio Y to returns on the market is 72. What percentage of Portfolio Y's return is driven by the market? (Enter your answer as a decimal not a percentage. Round your answer to 4 decimal places.)
answer must be correct
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
a) First, ignore the fact that r,rf depends on whether you are long or short the risk-free asset. Suppose rrf = 2%. Solve for the tangency portfolio. b) asset. Suppose rrf = 9%. Solve for the tangency portfolio. Again, ignore the fact that rrf depends on whether you are long or short the risk-free Now, for parts c) to f) of the questions, let's take into account that rrf depends on whether c) you are long or short the risk-free asset. Draw out the shape of the efficient frontier. (Hint: think about what (E, o) pairs you can achieve via investing positive amounts in the risk-free asset, and investing negative amounts in the risk-free asset (borrowing). You will use your answers to parts A. and B.). The drawing does not need to be to scale, but needs to illustrate correctly the shape of the efficient frontier. d) deviation of 10%. Solve for the optimal portfolio for the client (that is, the weights wA, WB,Wrf which maximize the client's expected return, conditional on the standard…
Baghiben
2.
Baghiben
Think about whether a risk-free asset should earn a risk-premium beyond the risk-free rate. Thinking about that should give you an idea of the beta for a risk-free asset. Or, look again at the CAPM equation: E(Ri)=Rf+βi[E(RM)−Rf] Given this equation, what beta sets the E(R) of the risk free asset equal to the risk-free rate? A) zero B) 0.5 C) 1.0 D) its random
D5)
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 %
Suppose the utility function is U = E(r) - 0.5Ao2. Draw the indifference curve corresponding to a utility level of 0.2 for an investor with a risk aversion coefficient of 3. Please note the vertical line indicates expected return, and plot standard deviation on the horizontal line.
Portfolio Suppose rA ~ N (0.05, 0.01), rB ~ N (0.1, 0.04) with pA,B = 0.2 where rA and rB are CCR’s. a) Suppose you construct a portfolio with 50% for A and 50% for B. Find the variance of the portfolio CCR. b) Find the portfolio expected gross return. c) Find the expected portfolio CCR.

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