As an investor you have the secruities available for investment in Table 1: Table 1 Expectred Returns Standard Securities e Deviation A 10% 20% e B 30% 60% T-Bills 5 Correlation Coefficient (p) between -0.2 A and B Degree of Risk Aversion 5 Required: a) Find the optimal risky portfolio (P) and its expected retum and standard deviation. b) Find the optimal final portfolio (F) and its expected return and standard deviation.
As an investor you have the secruities available for investment in Table 1: Table 1 Expectred Returns Standard Securities e Deviation A 10% 20% e B 30% 60% T-Bills 5 Correlation Coefficient (p) between -0.2 A and B Degree of Risk Aversion 5 Required: a) Find the optimal risky portfolio (P) and its expected retum and standard deviation. b) Find the optimal final portfolio (F) and its expected return and standard deviation.
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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Before understanding the concept of Risk and Return in Financial Management, understanding the two-concept Risk and return individually is necessary.
Capital Asset Pricing Model
Capital asset pricing model, also known as CAPM, shows the relationship between the expected return of the investment and the market at risk. This concept is basically used particularly in the case of stocks or shares. It is also used across finance for pricing assets that have higher risk identity and for evaluating the expected returns for the assets given the risk of those assets and also the cost of capital.
Question
Transcribed Image Text:As an investor you have the secruities available for investment in Table 1:
Table 1 -
Expectred
Returns
Standard
Securities e
Deviation e
A
10% e
20% e
30%
60% e
T-Bills
5
Correlation Coefficient (p) between
-0.2
A and B
Degree of Risk Aversion
5
Required:
a) Find the optimal risky portfolio (P) and its expected retum and standard deviation.
b) Find the optimal final portfolio (F) and its expected return and standard deviation. +
Transcribed Image Text:c) Assume that you have £100,000 in savings. How much will you invest in each of securities
A, B and T-bills respectively? e
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