Assume a risky asset has a mean return of us = 0.05 and volatility of gs = 0.1 and the risk-free asset has a mean return of 0.02. When you work up this morning you had a risk aversion of a = 2, but after reading the news paper you were worried that we were entering a recession and your risk aversion increased to a = where you have one risky asset and one risk-free asset, what would be the change in your optimal portfolio weight on the risk-free asset from this change in risk aversion? !! 10. Based on the optimal portfolio allocation setting A) B) -0.6 C) 0.6 D) 12 E) 0.06 None of the above

Assume a risky asset has a mean return of us = 0.05 and volatility of gs = 0.1 and the risk-free asset has a mean return of 0.02. When you work up this morning you had a risk aversion of a = 2, but after reading the news paper you were worried that we were entering a recession and your risk aversion increased to a = where you have one risky asset and one risk-free asset, what would be the change in your optimal portfolio weight on the risk-free asset from this change in risk aversion? !! 10. Based on the optimal portfolio allocation setting A) B) -0.6 C) 0.6 D) 12 E) 0.06 None of the above

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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Assume that the short-term risk-free rate is 6%, the market index S&P500 is expected to pay returns of 30% with the standard deviation equal to 40%. Asset A pays on average 10%, has a standard deviation equal to 40% and is NOT correlated with the S&P500. Asset B pays on average 16%, also has a standard deviation equal to 40% and has a correlation of 1 with the S&P500. Determine whether asset A and B are overvalued or undervalued, and explain why. (Beta of asset i (?i) = ?i ?iM / ?M, where ?i, ?M are standard deviations of asset i and market portfolio, ?iM is the correlation between asset i and the market portfolio)
Two risky assets: A and B. The expected return for A is 15% and for B 30%. The variance for returns for A is 200(%2) and for B is 800(%2). The covariance between A and B returns is -0.05. T-bills give a return of 5% with a standard deviation of 0%. The investor has a risk aversion index, A=5.0. Show all work. 1. calculate the correlation between A and B 2. calculate portfolio return / standard deviation for global mvp 3. optical risky portfolio, P (expected return and SD) 4. slope of CAL 5. how much will the investor invest (A=4) in T-bills, assets A and B?
Consider two different assets. Asset A has a mean expected return of 6% with a standard deviation of 22%. Asset B has a standard deviation of returns of 32%. What should be the mean expected return on asset B for a rational investor to be indifferent about these two investments? Answer only if you are 100% sure, other wise i will report your answer.
If the yield curve is upward sloping: Hint: When there is an increase in the demand for an asset, the price of the asset goes up. You expect returns from investing in such ("higher-priced") asset to be lower in the future. Conversely, when there is a decrease in the demand for an asset, the price of the asset goes down. You expect returns from investing in such ("lower-priced") asset to be higher in the future. O investors expect the short-term interest rates to fall in the future. investors often shift their investment holdings away from long-term securities. investors often short sell short-term securities. investors often shift their investment holdings away from short-term securities.
An analyst has modeled the stock of Crisp Trucking using a two-factor APT model. The risk-free rate is 5%, the expected return on the first factor (r₁) is 14%, and the expected return on the second factor (r2) is 8%. If bil 0.5 and bi2 = 0.8, what is Crisp's required return? Do not round intermediate calculations. Round your answer to one decimal place. % =
d) Assume that the short-term risk-free rate is 3%, the market index S&P500 is expected to pay returns of 15% with the standard deviation equal to 20%. Asset A pays on average 5%, has standard deviation equal to 20% and is NOT correlated with the S&P500. Asset B pays on average 8%, also has standard deviation equal to 20% and has correlation of 0.5 with the S&P500. Determine whether asset A and B are overvalued or undervalued, and explain why. (Hint: Beta of asset i (B¡) = "PIM , where ơị,ɑm are standard deviations of asset i and market OM portfolio, Pim is the correlation between asset i and the market portfolio)
No excel please. Show formulas and step-by-step. Please answer fast i give you upvote.
Answer whether each of the following statements is correct and explain your argument. \ (a) According to CAPM, the expected return of a risky asset is larger than the risk free rate. (b) According to CAPM, the expected return of a risky asset increases with its variance. (c) According to the separation property, the optimal risky portfolio for an investor dependson the investor’s personal preference. (d) A less risk-averse investor has a steeper indifference curve for the utility function.

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