An investment banker has recommended a $100,000 portfolio containing assets B, D, and F. $30,000 will be invested in asset B, with a beta of 1.5; $50,000 will be invested in asset D, with a beta of 2.0; and $20,000 will be invested in asset F, with a beta of 0.5. The beta of the portfolio is 1.37 1.61 1,55 1.43

An investment banker has recommended a $100,000 portfolio containing assets B, D, and F. $30,000 will be invested in asset B, with a beta of 1.5; $50,000 will be invested in asset D, with a beta of 2.0; and $20,000 will be invested in asset F, with a beta of 0.5. The beta of the portfolio is 1.37 1.61 1,55 1.43

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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The investor has R60,000 to invest. R15,000 will be invested into the market portfolio, R10,000 into asset A and R25,000 into asset B. The balance will be invested into the risk-free asset. The beta for asset A and asset B is 0.90 and 1.2 respectively. What is the portfolio beta? What is the correct answer? A. 0.09 B. 0.90 C. 0.91 D. 0.92
2. Consider two assets, S and B. The expected return on S is 12.2% while the expected return on B is 5.8 % . The standard deviation of Asset S returns is 20 %, while the standard deviation of Asset B returns is 10%. The correlation between Asset S and Asset B returns is 0.05. (a) What is the expected return on a portfolio with 20% of invested funds in S and 80% of invested funds in B? (b) What is the standard deviation of returns for a portfolio with 20% of invested funds in S and 80% of invested funds in B? (c) Compare your answers obtained in part (b) to the expected return and standard deviation of a portfolio will all funds invested in B, and summarize the principle demonstrated by the comparison. (d) Assume that the correlation of 0.05 was based on
This question requires you to consider a three-asset portfolio valued at 10 million AUD. The portfolio consists of the following assets: AMP, Commonwealth Bank (CBA) and QBE. The variance covariance matrix of 5 day continuously compounded returns is equal to (a) Define the Value at Risk (VAR) for a portfolio. (b) Assuming portfolio weights of AMP (40%), CBA (30%), QBE (30%), calculate the 99 % 5 day relative VaR estimate (employ a z score measured to 2 decimal places) (c) Calculate the VaR diversification benefit of the portfolio.
A project under consideration has an internal rate of return of 16% and a beta of 0.9. The risk free rate is 6% and the expected rate of return on the market portfolio is 16%. A. What is the required rate of return? B. Should the project be accepted? C. What is the required rate of return on the project if it's beta is 1.90? D. If the projects beta is 1.90 should the project be accepted?
You are constructing a portfolio of two assets, Asset A and Asset B. The expected returns of the assets are 12 percent and 16 percent. respectively. The standard deviations of the assets are 29 percent and 37 percent, respectively. The correlation between the two assets is 41 and the risk-free rate is 3.4 percent. What is the optimal Sharpe ratio in a portfolio of the two assets? What is the smallest expected loss for this portfolio over the coming year with a probability of 2.5 percent? (A negative value should be indicated by a minus sign. Do not round intermediate calculations. Round your Sharpe ratio answer to 4 decimal places and the z-score value to 3 decimal places when calculating your answer. Enter your smallest expected loss as a percent rounded to 2 decimal places.) Sharpe ratio Smallest expected loss %
You invest $96 in a risky asset and the T-bill. The risky asset has an expected rate of return of 19% and a standard deviation of 0.22, and a T-bill with a rate of return of 4%. A portfolio that has an expected outcome of $110 is formed by investing what dollar amount in the risky asset? Round your answer to the nearest cent (2 decimal places).
State the return rate (in %) for your optimal portfolio.
An investment advisor has recommended a R50,000 portfolio containing assets R, J, and K; R25,000 will be invested in asset R, with an expected annual return of 12 percent; R10,000 will be invested in asset J, with an expected annual return of 18 percent; and R15,000 will be invested in asset K, with an expected annual return of 8 percent. What is the expected annual return of this portfolio? What is the correct answer? A. 12.01% B. 12.00% C. 11.98% D. 12.93%
Consider the following risk-return characteristics for funds A and B: Expected return Risk Fund A (Equity) 12% 20% Fund B (Debt) 9% 16% The correlation coefficient between the returns of fund A and fund B is 0.4. 1. Which Fund is riskier? Write 1 if your answer is Fund A, write 2 if your answer is Fund B, or write 3 if your answer is undetermined. 2.1 What is the weight of fund A in the minimum variance portfolio? 2.4 What is the risk of the minimum variance portfolio? 2.2 What is the weight of Fund B in the minimum variance portfolio? 2.3 What is the expected return of the minimum variance portfolio?
A project under consideration has an internal rate of return of 17% and a beta of 0.5. The risk-free rate is 9% and the expected rate of return on the market portfolio is 17%. A. What is the required rate of return on the project? B. Should the project be accepted? C. What is the required rate of return on the project if the beta is 1.50? D. If projects beta is 1.50, should the project be accepted?
Suppose the market risk premium is 6.8% and the risk-free interest rate is 4.5%. Calculate the cost of capital of investing in a project with a beta of 1.4.
You have estimated the single index model (SIM) fund B and found that its alpha and beta are 0.035 and 1.1 respectively. The standard deviation of Fund B's excess returns is 30% and the market portfolio excess returns have a standard deviation of 20%. What's the information ratio of Fund B?

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