Consider a risky portfolio, A, with an expected rate of return of 0.16 and a standard deviation of 0.25, that lies on a given indifference curve. Which one of the following portfolios is not likely to lie on the same indifference curve for a risk-averse investor with a mean- variance utility function? a. Expected return = 0.20; Standard deviation = 0.15 b. Expected return = 0.10; Standard deviation = 0.20 OC. Expected return= 0.15; Standard deviation = 0.20 O d. Expected return = 0.12; Standard deviation = 0.10 O e. Expected return = 0.10; Standard deviation = 0.10

Consider a risky portfolio, A, with an expected rate of return of 0.16 and a standard deviation of 0.25, that lies on a given indifference curve. Which one of the following portfolios is not likely to lie on the same indifference curve for a risk-averse investor with a mean- variance utility function? a. Expected return = 0.20; Standard deviation = 0.15 b. Expected return = 0.10; Standard deviation = 0.20 OC. Expected return= 0.15; Standard deviation = 0.20 O d. Expected return = 0.12; Standard deviation = 0.10 O e. Expected return = 0.10; Standard deviation = 0.10

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter8: Analysis Of Risk And Return

Section: Chapter Questions

Problem 6P

See similar textbooks

Similar questions

Consider a risky portfolio, A, with an expected rate of return of 0.15 and a standard deviation of 0.15, that lies on a given indifference curve. Which one of the following portfolios might lie on the same indifference curve? A. E(r) = 0.15; Standard deviation = 0.20 B. E(r) = 0.20; Standard deviation = 0.15 C. E(r) = 0.10; Standard deviation = 0.10 D. E(r) = 0.10; Standard deviation = 0.20 E. E(r) = 0.15; Standard deviation = 0.10
Some assumptions of Markowitz Portfolio Theory are said to be : (a) Investors consider each investment alternative as being presented by a probability distribution of expected returns over some holding period. (b) Investors estimate the return of the portfolio on the basis of the variability of expected Risk. (c) Investors base decisions solely on expected return and risk, so their utility curves are a function of expected return and the expected variance (or standard deviation)of returns only. (d) Investors minimize one-period expected utility, and their utility curves demonstrate diminishing marginal utility of wealth. a. B & C only b. B , C and D only c. All of the above d. A ,C and D only
Which of the following statements regarding the graph of the SML is most accurate? A Select one OA. The beta of Portfolios A, B, and C are identical as they fall directly on the line. B. The expected return of Portfolio C is the difference between the market's expected return and the risk-free rate. C. Portfolio A has lower systematic risk than Portfolio B. D. The slope of the line is the market risk premium.
A portfolio that is positively correlated with the market portfolio but not particularly sensitive to market risk factors would have a beta that is A. Equal to zero. B. Equal to one. C. Less than zero. D. Between 0 and 1. E. Greater than 1.
If a portfolio has a positive investment in every asset, can the standard deviation on the portfolio be less than that on every asset in the portfolio? What about the portfolio beta?
Portfolios that offer the highest expected return for a given variance (or standard deviation) are known as efficient portfolios. O true false
The following figures show the optimal portfolio choice for two investors with different levels of risk-aversion graphically. Which statement is correct? E[R] 0.3 0.25 0.2 0.15 0.1 0.05 0 0 0.05 0.1 0.15 Figure 1 0.2 0.25 0.3 0.35 o(R) 0.4 0.45 [H]Z 0.3 0.25 0.2 0.15 0.1 0.05 0 0 0.05 0.1 Figure (2) shows an investor that borrows in risk-free rate and invests in the risky asset. Figure (1) shows an investor with a conservative investment behavior. In the optimal point of both figures, the highest indifference curve is tangent to the efficient frontier. In Figure (1), more aggressive investment decision led to a higher Sharpe ratio. 0.15 Figure 2 0.2 0.25 o (R) 0.3 0.35 0.4 0.45
Given the indifference curves above, which of the following statements isCORRECT? A) The investor prefers portfolio A because it has a lower level of risk. B) The investor prefers portfolio B because it has the greatest expected return. C) The investor prefers portfolio E because it is on the indifference curve 2, which is higher than the indifference curve 1, where both portfolios A and B are situated. D) The investor does not prefer one portfolio from another as each portfolio lies on an indifferent curve.
(Singular) Suppose there are two stocks that are uncorrelated. Each of these has variance of 1, and there are expected returns are 7₁ and 72, respectively. The risk-free rate is rf. Find the portfolio of weights w₁ and w2 for the Markowitz (market) portfolio. Show that for some value of rf there is no Markowitz portfolio.
An efficient portfolio is one that: Select one: a. maximises return for a given level of risk. b. maximises risk for a given level of return. c. minimises risk for a given rate of return. d. Both A and C. are efficient portfolios.
Mean-variance expected utility is given by Eu = e-, where e is expected return, v is the variance of the portfolio and tis risk tolerance. Suppose an investor has risk-loving preferences. What can we say about the value of t? Select one: Ot1 O. t>0 O t=0
Which of the following statements regarding the graph of the SML is most accurate? Select one O A. O B. B-1.0 The beta of Portfolios A, B, and C are identical as they fall directly on the line. The expected return of Portfolio C is the difference between the market's expected return and the risk-free rate. O C. Portfolio A has lower systematic risk than Portfolio B. OD. The slope of the line is the market risk premium.