Calculate the optimal risky portfolio for the following cases when short-sales are allowed.Compute its expected return and the standard deviation of its returns.1. Two risky assets: Rp = 3, R' = [6, 9], and4 55 202. Three risky assets: Rp = 4, R' = [5,9, 8], and[10 0 0E=0 400 0 203. Three risky assets: Rp = 5, R' = [12, 9, 8], and40 10 -5]E= 10 20 05 0 304. Five risky assets: Rp = 2, R' = [5, 3, 18, 9, 2], and%3D2 160.-125 -12 2016 1071427149.-138.72713

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Compute its expected return and the standard deviation of its returns. 1. Two risky assets: RF = 3, R' = [6,9], and Σ= 5 5 20 2. Three risky assets: RF = 4, R' = [5, 9, 8], and 10 0 0 Σ= |0 40 Ο 0 0 20 3. Three risky assets: Rp = 5, R' = [12, 9, 8], and

Compute its expected return and the standard deviation of its returns. 1. Two risky assets: RF = 3, R' = [6,9], and Σ= 5 5 20 2. Three risky assets: RF = 4, R' = [5, 9, 8], and 10 0 0 Σ= |0 40 Ο 0 0 20 3. Three risky assets: Rp = 5, R' = [12, 9, 8], and

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

Risk and return

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

Calculate the optimal risky portfolio for the following cases when short-sales are allowed.
Compute its expected return and the standard deviation of its returns.
1. Two risky assets: Rp = 3, R' = [6, 9], and
4 5
5 20
2. Three risky assets: Rp = 4, R' = [5,9, 8], and
[10 0 0
E=0 40
0 0 20
3. Three risky assets: Rp = 5, R' = [12, 9, 8], and
40 10 -5]
E= 10 20 0
5 0 30
4. Five risky assets: Rp = 2, R' = [5, 3, 18, 9, 2], and
%3D
2 16
0.
-12
5 -12 20
16 10
7
14
27
14
9.
-13
8.
7
27
13

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