Determine which portfolio allocation is closest to theBPT optimal portfolio for the investor below with thefollowing criteria. This investor plans to invest $1,000,000 and has an aspirational level of $1,050,000with a probability of 75%. She can tolerate somepotential loss in wealth but not more than $100,000 (minimum portfolio value of $900,000). Below is twopotential portfolio allocations for this scenario. SHOWYOUR WORK Layer Allocation 1 Allocation 2 Riskless59% 90% Speculative 41 % 10% Speculative PortfolioRiskless Portfolio Probability Expected Return ExpectedReturn 10% -25% 0.50% 60% 12% 30% 50%

Allocation 1 and Allocation 2 were analyzed to determine which is closer to the optimal portfolio…

Answered: Determine which portfolio allocation is…

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter3: Risk And Return: Part Ii

Section: Chapter Questions

Problem 7MC: Write out the equation for the Capital Market Line (CML), and draw it on the graph. Interpret the...

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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…
Consider the following information about a risky portfolio that you manage and a risk-free asset: E(rp) = 11%, op = 12%, 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 7%. 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 17%. Which client is more risk averse? Complete this question by entering your answers in the tabs below. Required A Required B Required C 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 7%. What proportion should she invest in the…
Consider the following information about a risky portfolio that you manage and a risk-free asset: E(rp) = 9%, Op = 24%, 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?
Consider the following information about a risky portfolio that youmanage, and a risk-free asset: E(rP ) = 11%, σP = 15%, rf = 5%.a) Your client wants to invest a proportion of her total investment budget in your riskyfund to provide an expected rate of return on her overall or complete portfolio equal to8%. What proportion should she invest in the risky portfolio, P, and what proportionin 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 limithis standard deviation to be no more than 12%. Which client is more risk averse?
Consider the following information about a risky portfolio that you manage and a risk-free asset: E(rp) = 16%, Op = 26%, rf = 4%. 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 6%. What proportion should she invest in the risky portfolio, P, and what proportion in the risk- free asset? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Risky portfolio Risk-free asset b. What will be the standard deviation of the rate of return on her portfolio? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Standard deviation % % O First client O Second client % 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?
Find the expected portfolio return and standard deviation if you were to invest 50% of your portfolio in Asset B, 50% in Asset C, with no allocation to Asset A. Compute your answers to the nearest tenth of a basis point. (See attached data file) We know that Asset A: B: C: expected return: 1.16 1.35 1.38 expected standard deviation: 2.88 1.58 2.19
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As the chief investment officer for a money management firm specializing in taxable individual investors, you are trying to establish a strategic asset allocation for two different clients. You have established that Ms. A has a risk-tolerance factor of 8, while Mr. B has a risk-tolerance factor of 27. The characteristics for four model portfolios follow: ASSET MIX Bond 93% 75 32 13 Portfolio 1 2 3 4 Stock 7% 25 GB 87 a. Calculate the expected utility of each prospective portfolio for each of the two clients. Do not round intermediate calculations. Round your answers to two decimal places. 1 2 3 Portfolio Ms. A ER 8% 9 10 11 b. Which portfolio represents the optimal strategic allocation for Ms. A? Which portfolio is optimal for Mr. B? Portfollo-Select-represents the optimal strategic allocation for Ms. A. Portfolio Select is the optimal allocation for Mr. B. c. For Ms. A, what level of risk tolerance would leave her indifferent between having Portfolio 1 or Portfolio 2 as her strategic…
You manage a risky portfolio with an expected rate of return of 19% and a standard deviation of 31%. The T-bill rate is 5%. Suppose that your client prefers to invest in your fund a proportion y that maximizes the expected return on the complete portfolio subject to the constraint that the complete portfolio’s standard deviation will not exceed 19%. a. What is the investment proportion, y? (Round your answer to 2 decimal places.) b. What is the expected rate of return on the complete portfolio? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

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