c) Consider three portfolios A, B, and C. All three portfolios lie on the efficient frontier which allows for risk-free investments. Portfolios A and B have the following expected returns and standard deviations of returns: E(r) | STD A 6% B 8% 15% 10% i. If Portfolio C has an expected return equal to 12%, what are its Sharpe ratio and standard deviation of returns? i. What is the risk-free interest rate in the economy?

c) Consider three portfolios A, B, and C. All three portfolios lie on the efficient frontier which allows for risk-free investments. Portfolios A and B have the following expected returns and standard deviations of returns: E(r) | STD A 6% B 8% 15% 10% i. If Portfolio C has an expected return equal to 12%, what are its Sharpe ratio and standard deviation of returns? i. What is the risk-free interest rate in the economy?

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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Concept explainers

Portfolio Management

Portfolio management is the process by which an investor decides that how the person will invest in a variety of assets in order to get a desired return in the future. A portfolio means a pool of assets that includes securities, bonds, and other investment instruments which helps in risk minimization of the money that has been invested. In other words, it can be said that a portfolio means a combination of assets in which an investor decides to invest their money in order to get a lump sum return in the future or even a series of cash flow that the person is expecting at the end of their job life.

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c) Consider three portfolios A, B, and C. All three portfolios lie on the efficient frontier which allows for risk-free investments. Portfolios A and B have the
following expected returns and standard deviations of returns:
E(r) | STD
A
6%
10%
В
8%
15%
i.
If Portfolio C has an expected return equal to 12%, what are its Sharpe ratio and standard deviation of returns?
ii.
What is the risk-free interest rate in the economy?

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