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For this problem assume that the Capital Asset Pricing Model (CAPM) holds true (with the same riskless rate available for both borrowing and lending). It is August 15, 2020. Nick, Joe, and Kevin Jonas from the celebrated vocal music trio, The Jonas Brothers, each consults with his investment advisor about his investment strategies for the next year. Each of them tells his investment advisor that he wants that advisor to recommend a portfolio position that has the highest expected rate of return for the total risk associated with that position where that total risk is measured by the standard deviation of the position's rate of return. Assume that each investor follows his investment advisor's advice. Assume that over the subsequent year (between August 15, 2020 and August 15, 2021) the actual return on the market portfolio turns out to be 3.86% and the return on riskless one-year treasury bills is 5.65%. The following table gives the actual return that each investor achieved after following the advice of his investment advisor. Nick - 2.14% Joe 6.38% Kevin Actual Return 4.21% over the Year Can you say, given what occurred on their investment positions, who among these investors received good advice from his advisor and who did not? CHECK THE BOXES BELOW THAT APPLY, AND ON THE NEXT PAGE, PLEASE GIVE A BRIEF, YET THOUGHTFUL, EXPLANATION FOR YOUR ANSWERS. Definitely Received Good Advice from His Investment Advisor Definitely Did NOT Receive Good Advice from His Investment Advisor May or May Not Have Received Good Advice from His Investment Advisor (There is not enough information to tell) Nick Joe Kevin

For this problem assume that the Capital Asset Pricing Model (CAPM) holds true (with the same riskless rate available for both borrowing and lending). It is August 15, 2020. Nick, Joe, and Kevin Jonas from the celebrated vocal music trio, The Jonas Brothers, each consults with his investment advisor about his investment strategies for the next year. Each of them tells his investment advisor that he wants that advisor to recommend a portfolio position that has the highest expected rate of return for the total risk associated with that position where that total risk is measured by the standard deviation of the position's rate of return. Assume that each investor follows his investment advisor's advice. Assume that over the subsequent year (between August 15, 2020 and August 15, 2021) the actual return on the market portfolio turns out to be 3.86% and the return on riskless one-year treasury bills is 5.65%. The following table gives the actual return that each investor achieved after following the advice of his investment advisor. Nick - 2.14% Joe 6.38% Kevin Actual Return 4.21% over the Year Can you say, given what occurred on their investment positions, who among these investors received good advice from his advisor and who did not? CHECK THE BOXES BELOW THAT APPLY, AND ON THE NEXT PAGE, PLEASE GIVE A BRIEF, YET THOUGHTFUL, EXPLANATION FOR YOUR ANSWERS. Definitely Received Good Advice from His Investment Advisor Definitely Did NOT Receive Good Advice from His Investment Advisor May or May Not Have Received Good Advice from His Investment Advisor (There is not enough information to tell) Nick Joe Kevin

Essentials Of Investments
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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For this problem assume that the Capital Asset Pricing Model (CAPM) holds true (with the same riskless rate available for both borrowing and lending). It is August 15, 2020. Nick, Joe, and Kevin Jonas from the celebrated vocal music trio, The Jonas Brothers, each consults with his investment advisor about his investment strategies for the next year. Each of them tells his investment advisor that he wants that advisor to recommend a portfolio position that has the highest expected rate of return for the total risk associated with that position where that total risk is measured by the standard deviation of the position's rate of return. Assume that each investor follows his investment advisor's advice. Assume that over the subsequent year (between August 15, 2020 and August 15, 2021) the actual return on the market portfolio turns out to be 3.86% and the return on riskless one-year treasury bills is 5.65%. The following table gives the actual return that each investor achieved after following the advice of his investment advisor. Nick - 2.14% Joe 6.38% Kevin Actual Return 4.21% over the Year Can you say, given what occurred on their investment positions, who among these investors received good advice from his advisor and who did not? CHECK THE BOXES BELOW THAT APPLY, AND ON THE NEXT PAGE, PLEASE GIVE A BRIEF, YET THOUGHTFUL, EXPLANATION FOR YOUR ANSWERS. Definitely Received Good Advice from His Investment Advisor Definitely Did NOT Receive Good Advice from His Investment Advisor May or May Not Have Received Good Advice from His Investment Advisor (There is not enough information to tell) Nick Joe Kevin
Transcribed Image Text:For this problem assume that the Capital Asset Pricing Model (CAPM) holds true (with the same riskless rate available for both borrowing and lending). It is August 15, 2020. Nick, Joe, and Kevin Jonas from the celebrated vocal music trio, The Jonas Brothers, each consults with his investment advisor about his investment strategies for the next year. Each of them tells his investment advisor that he wants that advisor to recommend a portfolio position that has the highest expected rate of return for the total risk associated with that position where that total risk is measured by the standard deviation of the position's rate of return. Assume that each investor follows his investment advisor's advice. Assume that over the subsequent year (between August 15, 2020 and August 15, 2021) the actual return on the market portfolio turns out to be 3.86% and the return on riskless one-year treasury bills is 5.65%. The following table gives the actual return that each investor achieved after following the advice of his investment advisor. Nick - 2.14% Joe 6.38% Kevin Actual Return 4.21% over the Year Can you say, given what occurred on their investment positions, who among these investors received good advice from his advisor and who did not? CHECK THE BOXES BELOW THAT APPLY, AND ON THE NEXT PAGE, PLEASE GIVE A BRIEF, YET THOUGHTFUL, EXPLANATION FOR YOUR ANSWERS. Definitely Received Good Advice from His Investment Advisor Definitely Did NOT Receive Good Advice from His Investment Advisor May or May Not Have Received Good Advice from His Investment Advisor (There is not enough information to tell) Nick Joe Kevin
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