Greta has 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 6% per year, with a standard deviation of 18%. The hedge fund risk premium is estimated at 8% with a standard deviation of 33%. The returns on both of these portfolios in any particular year are uncorrelated with its own returns in other years. They are also uncorrelated with the returns of the other portfolio in other years. The hedge fund claims the correlation coefficient between the annual return on the S&P 500 and the hedge fund return in the same year is zero, but Greta is not fully convinced by this claim. What should be Greta's capital allocation? (Do not round your intermediate calculations. Round your answers to 2 decimal places.) S&P Hedge Risk-free asset % % %

Greta has 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 6% per year, with a standard deviation of 18%. The hedge fund risk premium is estimated at 8% with a standard deviation of 33%. The returns on both of these portfolios in any particular year are uncorrelated with its own returns in other years. They are also uncorrelated with the returns of the other portfolio in other years. The hedge fund claims the correlation coefficient between the annual return on the S&P 500 and the hedge fund return in the same year is zero, but Greta is not fully convinced by this claim. What should be Greta's capital allocation? (Do not round your intermediate calculations. Round your answers 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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Martin Brown is a fixed-income portfolio manager who works with large institutional clients. Brown is meeting with Sarah Redi, a consultant to the Horizon Redi Pension Plan, to discuss the management of the fund's, approximately R100 million. Treasury bond portfolio. The current Treasury yield curve is given in the following table. Maturity (years) 1 12 3 4 YTM (%) 6.0 8.0 9.0 9.5 Assume that the liquidity premiums for the one-year, two-year and three-year maturities (one year from now) are 1% 2.33% and 4%, respectively, determine the expected spot rates in one years time for the one, two, and three year maturing bonds.
Alice's portfolio consists solely of an investment in Merrill stock. Merrill has an expected return of 13% and a volatility of 18%. The market portfolio has an expected return of 12% and a volatility of 25%. The risk-free rate is 4%. Assume that the CAPM assumptions hold in the market. Assuming that Alice wants to maintain the current expected return on his portfolio, then the amount that Alice should invest in the market portfolio to minimize his volatility is closest to: Select one: O A. 110% O B. 90% C. 125% D. 100%
Greta has risk aversion of A = 3 when applied to return on wealth over a 1-year horizon. She is pondering two portfolios, the S&P 500 and a hedge fund, as well as a number of 1-year strategies. (All rates are annual and continuously compounded.) The S&P 500 risk premium is estimated at 9% per year, with a standard deviation of 17%. The hedge fund risk premium is estimated at 11% with a standard deviation of 32%. The returns on both of these portfolios in any particular year are uncorrelated with its own returns in other years. They are also uncorrelated with the returns of the other portfolio in other years. The hedge fund claims the correlation coefficient between the annual return on the S&P 500 and the hedge fund return in the same year is zero, but Greta is not fully convinced by this claim. Required: a-1. Assuming the correlation between the annual returns on the two portfolios is 0.3, what would be the optimal asset allocation? a-2. What is the expected risk premium on the…
A 280.
Greta has risk aversion of A= 5 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 1-year strategies. (All rates are annual and continuously compounded.) The S&P 500 risk premium is estimated at 9% per year, with a standard deviation of 17%. The hedge fund risk premium is estimated at 11% with a standard deviation of 32%. The returns on both of these portfolios in any particular year are uncorrelated with its own returns in other years. They are also uncorrelated with the returns of the other portfolio in other years. The hedge fund claims the correlation coefficient between the annual return on the S&P 500 and the hedge fund return in the same year is zero, but Greta is not fully convinced by this claim. a-1. Assuming the correlation between the annual returns on the two portfolios is indeed zero, what would be the optimal asset allocation? (Do not round intermediate calculations. Enter your…
Manshukh
Greta has risk aversion of A = 5 and a 1-year investment horizon. She is pondering two portfolios, the S&P 500 and a hedge fund, as well as a number of 1-year strategies. (All rates are annual and continuously compounded.) The S&P 500 risk premium is estimated at 7% per year, with a standard deviation of 19%. The hedge fund risk premium is estimated at 11% with a standard deviation of 34%. The returns on both of these portfolios in any particular year are uncorrelated with its own returns in other years. They are also uncorrelated with the returns of the other portfolio in other years. The hedge fund claims the correlation coefficient between the annual return on the S&P 500 and the hedge fund return in the same year is zero, but Greta is not fully convinced by this claim. What should be Greta's capital allocation? Note: Do not round your intermediate calculations. Round your answers to 2 decimal places. S&P Hedge Risk-free asset % % %
Greta has risk aversion of A = 5 and a 1-year investment horizon. She is pondering two portfolios, the S&P 500 and a hedge fund, as well as a number of 1-year strategies. (All rates are annual and continuously compounded.) The S&P 500 risk premium is estimated at 7% per year, with a standard deviation of 19%. The hedge fund risk premium is estimated at 11% with a standard deviation of 34%. The returns on both of these portfolios in any particular year are uncorrelated with its own returns in other years. They are also uncorrelated with the returns of the other portfolio in other years. The hedge fund claims the correlation coefficient between the annual return on the S&P 500 and the hedge fund return 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. Note: Do not round your intermediate calculations. Round your answers to 2 decimal places. S&P Hedge % % Risk-free asset %
Greta has risk aversion of A = 5 when applied to return on wealth over a one-year horizon. She is pondering two portfolios, the TSX/S&P Composite Index and a hedge fund, as well as a number of one-year strategies. (All rates are annual and continuously compounded.) The TSX/S&P Composite Index risk premium is estimated at 10% per year, with a standard deviation of 16%. The hedge fund risk premium is estimated at 8% with a standard deviation of 26%. The returns on both of these portfolios in any particular year are uncorrelated with its own returns in other years. They are also uncorrelated with the returns of the other portfolio in other years. The hedge fund claims the correlation coefficient between the annual return on the TSX/S&P Composite Index and the hedge fund return in the same year is zero, but Greta is not fully convinced by this claim. a-1. Assuming the correlation between the annual returns on the two portfolios is 0.3, what would be the optimal asset allocation? (Do not…
Greta, 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 5% per year, with a SD of 20%. The hedge fund risk premium is estimated at 10% with a SD of 35%. The returns on both of these portfolios in any particular year are uncorrelated with its own returns in other years. They are also uncorrelated with the returns of the other portfolio in other years. The hedge fund claims the correlation coefficient between the annual return on the S&P 500 and the hedge fund return in the same year is zero, but Greta is not fully convinced by this claim.What should be Greta’s capital allocation?
Your portfolio allocates equal funds to DW Company and Woodpecker, Incorporated. DW Company stock has an annual return mean and standard deviation of 15.5 percent and 44 percent, respectively. Woodpecker stock has an annual return mean and standard deviation of 12.6 percent and 44 percent, respectively. The return correlation between DW and Woodpecker is zero. What is the smallest expected loss for your portfolio in the coming month with a probability of 16 percent? Note: A negative value should be indicated by a minus sign. Do not round intermediate calculations. Round the z-score value to 3 decimal places when calculating your answer. Enter your answer as a percent rounded to 2 decimal places. X Answer is complete but not entirely correct. Smallest expected loss -20.43 × %
Greta has risk aversion of A = 4 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 5% per year, with a standard deviation of 17%. The hedge fund risk premium is estimated at 10% with a standard deviation of 32%. The returns on both of these portfolios in any particular year are uncorrelated with its own returns in other years. They are also uncorrelated with the returns of the other portfolio in other years. The hedge fund claims the correlation coefficient between the annual return on the S&P 500 and the hedge fund return in the same year is zero, but Greta is not fully convinced by this claim. If the correlation coefficient between annual portfolio returns is actually 0.3, what is the covariance between the returns?

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