Carolina is considering a $500 investment that will pay $750 with a 30% probability, $600 with a 20% probability, and $350 with a 50% probability. Construct a table showing her probabilities and payoffs. Solve for the expected value, standard deviation, and 95% value at risk of her investment option.
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- Given the data in the table and the information below, please answer the following question. Show all working and formulas used. Maturity (T) r(1) r(2) r(3) r(4) r(5) r(6) Spot Rate (%) 0.15 0.22 0.25 0.28 0.20 0.13 Misty would like to invest 10,000. She is faced with the choice between 2 investments: Option 1: invest for 5 years; Option 2: invest for 3 years and reinvest for another 2 years at a forward rate of 0.07% Should she be indifferent between the choices? If not, which one is the optimal option to Misty?Answers: a)A b)B c)C d)D e)ESam has a portfolio of three assets. Determine the expected rate of return for the portfolio assuming he invests 50 percent of his money in asset A with a 10 percent rate of return, 30 percent in asset B with a 20 percent rate of return, and the remainder in asset C with a 30 percent rate of return?
- Consider the following portfolio. You write a put option with exercise price $90 and buy a put with the same expiration date with exercise price $95. a. Plot the value of the portfolio at the expiration date of the options. b. Now, plot the profit of the portfolio. Which option must cost more?11. Maxine wants to choose a portfolio of assets to maximize her expected utility. Her utility function is u = Vw, where w denotes her wealth in one year. Her five choices are as follows: In one year portfolio A will be worth 49 with probability .6 or 64 with probability .4; portfolio B will be worth 36 with probability .6 or 81 with probability .4; portfolio C will be worth 25 with probability .6 or 100 with probability .4; portfolio D will be worth 16 with probability .5 or 121 with probability .5; portfolio E will be worth 4 with probability .5 or 144 with probability .5. Her most preferred portfolio is %3! (a) AYou are going to invest $50,000 in a portfolio consisting of assets X, Y, and Z, as follows; What is the expected return of this portfolio? Calculate the beta coefficient of the portfolio
- a. What are her expected returns and the risk from her investment in the three assets? How do they compare with investing in asset M alone? Hint: Find the standard deviations of asset M and of the portfolio equally invested in assets M, N, and O. b. Could Sally reduce her total risk even more by using assets M and N only, assets M and O only, or assets N and O only? Use a 50/50 split between the asset pairs, and find the standard deviation of each asset pair. Data table (Click on the following icon in order to copy its contents into a spreadsheet.) States Probability Asset M Return Boom 27% 12% Normal 53% 9% Recession 20% 0% Asset N Return 22% Asset O Return 0% 14% 9% 2% 12%You can invest in a portfolio of two assets: the riskfree asset with rate of return 6%, and a risky portfolio with expcected return 16% and stdev 30%. You optimally choose to invest equal amount in both assets. What is your risk aversion (keep 2 decimal places)? A=Consider the following portfolio. You write a put option with exercise price 90 and buy a put option on the same stock with the same expiration date with exercise price 95.a. Plot the value of the portfolio at the expiration date of the options.b. On the same graph, plot the profit of the portfolio. Which option must cost more?
- You will have a portfolio that is only comprised of two assets. You plan to allocate 47.1% into asset A, which has an expected return of 12.1%. The remainder of your portfolio will be allocated to asset B, which has an expected return of 5.9%. What is your expected return on this two-asset portfolio? State your answer as a percentage with two decimal places (i.e., 13.21, not 0.1321).You can invest in a portfolio of two assets: the riskfree asset with rate of return 10%, and a risky portfolio with expected return 14% and stdev 35%. You optimally choose to invest equal amount in the two assets. What is your utility?Consider the following information about a risky portfolio that you manage and a risk-free asset: E(rp) = 8%, op = 15%, rf = 2%. Required: a. Your client wants to invest a proportion of her total investment budget in your risky fund to provide an expected rate of return on her overall or complete portfolio equal to 8%. What proportion should she invest in the risky portfolio, P, and what proportion in the risk-free asset? b. What will be the standard deviation of the rate of return on her portfolio? c. Another client wants the highest return possible subject to the constraint that you limit his standard deviation to be no more than 12%. Which client is more risk averse? Complete this question by entering your answers in the tabs below. Required A Required B Required C Risky portfolio Risk-free asset Answer is complete but not entirely correct. Your client wants to invest a proportion of her total investment budget in your risky fund to provide an expected rate of return on her overall…
