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Howwould someone choose between investing in Portfolio A and Portfolio B?
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- Portfolio Expected return Standard deviation Q 7.8% 10.5% R 10.0% 14.0% S 4.6% 5.0% T 11.7% 18.5% U 6.2% 7.5% What is the minimum level of risk that would be necessary for an investment to earn 7.0%? What is the composition of the portfolio along the Capital Market Line (CML) that will generate that expected return? Rf= 3%Consider following information on a risky portfolio, risk-free asset and the market index. What is the T2 of the risky portfolio? Risky portfolio Risk-free asset Market index Average return 8.2% 2% 6% Std. Dev. 26% 20% Residual std. dev. 10% Alpha 1.4% Beta 1.2Suppose a portfolio is given as follows: Securities Weight BPW CJW AJT O 6.0% O 5.0% 0.3 O 5.1% 0.4 O 7.0% Onone listed Expected Standard Return Deviation 6% 7% 0.3 5% What is the expected return of the portfolio (to 1 decimal place)? 6% 4% 3%
- Consider following information on a risky portfolio, risk-free asset and the market index. What is the Sharpe ratio of the market index? Risky portfolio Risk-free asset Market index Average return 8.2% 2% 6% Std. Dev. 26% 20% Residual std. dev. 10% Alpha 1.4% Beta 1.2Suppose that• Return Ri:35% RM:28%• Volatility σi: 42% σM: 30%• Find a portfolio combination with the same level of risk than thebenchmark (market)Covariance with Mean Return Stock AOL Microsoft Intel AOL .002 .001 15% Microsoft .001 .002 .001 12 Intel 001 .002 10 5.2. Compute the tangency portfolio weights assuming a risk-free asset yields 5 percent.
- State of Economy Probability ABC Company Expected Return Expected Return XYZ Company Very Poor 0.30 -9% -19% Poor 0.25 -8% -6% Good 0.15 8% 9% Very Good 0.30 34% 33% Expected Return 6.70% 4.05% A) Calculate the covariance of the portfolio. Please answer as a decimal to 4 decimal places. Answer:The following table shows risk and return measures for two portfolios. Portfolio Average Annual Rate of Return Standard Deviation Beta R 11% 10% 0.5 S&P 500 14% 12% 1.0 When plotting portfolio R on the preceding table relative to the SML, portfolio R lies: a. Insufficient data given. b. Below the SML, but on the CML. C. Below the SML. d. On the SML. e. Above the SML.Consider the following simplified APT model: Factor Expected Risk Premium Market 6.4% Interest Rate -0.6% Yield Spread 5.1% Factor Risk Exposures Market Interest Rate Yield Spread Stock Stock(b1) (b2) (b3) P 1.0 -2.0 -0.2 P2 1.2 0 0.3 P3 0.3 0.5 1.0 Required: 1. Calculate the expected return for the above stocks. Assume risk free rate is 5%. Consider a portfolio with equal investments in stocks P, P2 and P3 2.What are the factor risk exposures for the portfolio? 3.What is the portfolio’s expected return?
- Consider the following information: Portfolio Expected Return Standard Deviation Risk-free 7% 0% Market 11.6 28 A 10.0 17 Required: a. Calculate the Sharpe ratios for the market portfolio and portfolio A. (Round your answers to 2 decimal places.) b. If the simple CAPM is valid, is the above situation possible?Consider the following two securities X and Y. Y Security Expected Return Standard Deviation Beta 12.5% 10.0% Risk-free asset 5.0% OA. 1.33 ○ B. 0.88 OC. 1.17 OD. 1.67 20.0% 1.5 30.0% 1.02. Calculate the expected return and expected risk of the portfolio below given the Asset J and Asset K has a correlation coefficient of +0.8. Asset Asset J Asset K Expected Return 8.0% 14.0% Weighting 60% 40% Risk of each asset 12.0% 21.0%