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a) Explain the practical relevance of the mean-variance model of portfolio selection
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- From the following equation for expected returns, explain what may cause stock prices to decrease in economic recessions: E(r) – risk-free rate = A*Var(r) A is the risk aversion for the average investor, and Var(r) is the variance of the market portfolio. Assume that investor risk aversion is constant.In stock index future hedging, the optimal number of contracts used to hedge depends on the beta of the equity portfolio when the stock index represents the entire stock market. Which of the following regarding the beta (in the above statement) is correct? The beta is the slope of the best fit line when the futures price (on the y-axis) is regressed against the spot price (on the x-axis). The beta is the slope of the best fit line when the spot price (on the y-axis) is regressed against the futures price (on the x-axis). The beta is the slope of the best fit line when the change in the futures price (on the y-axis) is regressed against the change in the spot price (on the x-axis). The beta is the slope of the best fit line when the change in the spot price (on the y-axis) is regressed against the change in the futures price (on the x-axis). None of the aboveA pension fund manager is considering three mutual funds. The first is a stock fund, the second is a long-term bond fund, and the third is a money market fund that provides a safe return of 8%. The characteristics of the risky funds are as follows: Expected Return Standard Deviation Stock fund (S) 20% 30% Bond fund (B) 12 15 The correlation between the fund returns is 0.10. a-1. What are the investment proportions in the minimum - variance portfolio of the two risky funds. (Do not round intermediate calculations. Enter your answers as decimals rounded to 4 places.) Portfolio invested in the stock Portfolio invested in the bond a-2. What are the expected value and standard deviation of the minimum variance portfolio rate of return? (Do not round intermediate calculations. Enter your answers as percentage rounded to 2 decimals.) Expected return % Standard deviation %
- Suppose there exist n = 1000 firms that seek to gain access to a small niche market that is regulated. Suppose that one firm will obtain access and that will get that firm an additional R = $50,000 in profits. Each firm already receives $1 million in profits from other ventures. a. Suppose the probability of winning the rents is linear in investment, each firm has an equal chance of winning and they are all risk-neutral. How much will each firm invest in rent-seeking? Are the rents fully dissipated? b. Suppose instead that the probability of winning changes with the amount invested in rent-seeking, so that each firm’s odds of gaining access are π(n,I) = I1/2 /n. Is the probability of winning increasing or decreasing in investment? Are there diminishing returns to rent-seeking? c. How much will each firm invest in rent-seeking? Are the rents fully dissipated, less than fully dissipated, or more than fully dissipated?I need help with question dPlease show the steps on how to solve in excel and please show the formulas Investments in storage facilities in San Diego, CA has a 62% return correlation with investments in multi-family properties in Atlanta. using the information provided below please solve a and b. Expected return - San Diego Storage 8.0%Expected return - Multi-Family Atlanta 7.0%SD of expected return - San Diego Storage 12.5%SD of expected return - Multi-Family Atlanta 15.0% a. What is the expected return on a portfolio that invests 40% in San Diego storage facilities and 60% in Atlanta multi-family properties? b. What can be said about the annual standard deviation of return of a portfolio that invests 40% in San Diego storage facilities and 60% in Atlanta multi-family properties? (note: the answer should only indicate a value that is smaller or larger than a specific percentage)
- advanced microeconomics, uncertaintyWhen a portfolio has a known future date for a particular outlay to occur, it is most likely that ___________ will be used by the portfolio manager as part of their immunisation strategy. a. Net Worth Immunisation b. Classical Immunisation c. Tools of Immunisation d. Contingent Immunisation e. Target Date ImmunisationIdentify the factorsunderlying the portfolio choice theory ofmoney demand
- Required Return If the risk-free rate is 3 percent and the risk premium is 5 percent, what is the required return?Millicent’s utility function is U(w) = W0.5 , where W is her wealth. She owns a “pure water” producing firm that will be worth GH100 or 0 Ghana cedis next year with equal probability. a. Suppose her firm is the only asset she has. What is the lowest price at which she will agree to sell her pure water? (Hint: price=amount that will give her the same expected utility) b. Assume that she has GH200 safely stored under her mattress, find the new lowest price at which she will agree to sell her “pure water” producing firm c. From your answers in parts (a) and (b), what is the relationship between her wealth and her degree of risk aversion?Typed plz And Asap Thanks
