ereta, an eiderly investor, has a degree of risk aversion of A=3 when applied to return on wealth over a one-year horizon. She is ondering two portfolios, the S&P 500 and a hedge fund, as well as a number of one-year strategies. (All rates are annual and ontinuously compounded.) The S&P 500 risk premium is estimated at 8% per year, with a SD of 23%. The hedge fund risk premium is stimated at 13% with a SD of 38%. The returns on both of these portfolos in any particular year are uncorrelated with its own returns - other years. They are also uncorrelated with the returns bf the other portfolio in other years. The hedge fund claims the correlation pefficient between the annual returns on the S&P 500 and the hedge fund in the same year is zero, but Greta is not fully convinced y this claim. alculate Greta's capital allocation using an annual correlation of 0.3. (Do not round your intermediate calculations. Round your nswers to 2 decimal places.) S&P Hedge Risk-free asset
ereta, an eiderly investor, has a degree of risk aversion of A=3 when applied to return on wealth over a one-year horizon. She is ondering two portfolios, the S&P 500 and a hedge fund, as well as a number of one-year strategies. (All rates are annual and ontinuously compounded.) The S&P 500 risk premium is estimated at 8% per year, with a SD of 23%. The hedge fund risk premium is stimated at 13% with a SD of 38%. The returns on both of these portfolos in any particular year are uncorrelated with its own returns - other years. They are also uncorrelated with the returns bf the other portfolio in other years. The hedge fund claims the correlation pefficient between the annual returns on the S&P 500 and the hedge fund in the same year is zero, but Greta is not fully convinced y this claim. alculate Greta's capital allocation using an annual correlation of 0.3. (Do not round your intermediate calculations. Round your nswers to 2 decimal places.) S&P Hedge Risk-free asset
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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Question
![oreta, an elderly investor, has a degree of risk aversion of A=3 when applied to return on wealth over a one-year horizon. She is
pondering two portfolios, the S&P 500 and a hedge fund, as well as a number of one-year strategies. (All rates are annual and
continuously compounded.) The S&P 500 risk premium is estimated at 8% per year, with a SD of 23%. The hedge fund risk premium is
estimated at 13% with a SD of 38%. The returns on both of these portfollos in any particular year are uncorrelated with its own returns
in other years. They are also uncorrelated with the returns bf the other portfolio in other years. The hedge fund claims the correlation
coefficient between the annual returns on the S&P 500 and the hedge fund in the same year is zero, but Greta is not fully convinced
by this claim.
Calculate Greta's capital allocation using an annual correlation of 0.3. (Do not round your intermediate calculations. Round your
answers to 2 decimal places.)
S&P
Hedge
Risk-free asset](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fee59e17b-c3b5-4046-bdc3-e1548346f7d2%2Fb8be21f6-3456-4019-82ec-fa63ab882140%2Fuqpvus7_processed.jpeg&w=3840&q=75)
Transcribed Image Text:oreta, an elderly investor, has a degree of risk aversion of A=3 when applied to return on wealth over a one-year horizon. She is
pondering two portfolios, the S&P 500 and a hedge fund, as well as a number of one-year strategies. (All rates are annual and
continuously compounded.) The S&P 500 risk premium is estimated at 8% per year, with a SD of 23%. The hedge fund risk premium is
estimated at 13% with a SD of 38%. The returns on both of these portfollos in any particular year are uncorrelated with its own returns
in other years. They are also uncorrelated with the returns bf the other portfolio in other years. The hedge fund claims the correlation
coefficient between the annual returns on the S&P 500 and the hedge fund in the same year is zero, but Greta is not fully convinced
by this claim.
Calculate Greta's capital allocation using an annual correlation of 0.3. (Do not round your intermediate calculations. Round your
answers to 2 decimal places.)
S&P
Hedge
Risk-free asset
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