Optimal Sharpe Portfolio Value-at-Risk (LO3, CFA6) You are constructing a portfolio of two assets, Asset A and Asset B. The expected returns of the assets are 12 percent and 15 percent, respectively. The standard deviations of the assets are 29 percent and 48 percent, respectively. The correlation between the two assets is .25 and the risk-free rate is 5 percent. What is the optimal Sharpe ratio in a portfolio of the two assets? What is the smallest expected loss for this portfolio over the coming year with a probability of 2.5 percent?

Optimal Sharpe Portfolio Value-at-Risk (LO3, CFA6) You are constructing a portfolio of two assets, Asset A and Asset B. The expected returns of the assets are 12 percent and 15 percent, respectively. The standard deviations of the assets are 29 percent and 48 percent, respectively. The correlation between the two assets is .25 and the risk-free rate is 5 percent. What is the optimal Sharpe ratio in a portfolio of the two assets? What is the smallest expected loss for this portfolio over the coming year with a probability of 2.5 percent?

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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Use the following information: E[rXOM] = 15.6%, standard deviationyOM = 15.9% %3D E[IMSI=29.7%, standard deviationMS = 35.2% Correlation of returns: PXOM.MS = 0.139, r=10% If the optimal amount to invest in the first asset (w) is 0.43, what is the variance of the risky portfolio when w=0.43? (write in decimal format using 5 decimal places)
Consider two well-diversified portfolios: Portfolio 1 has an expected return of 8% and a beta of 0.80 while Portfolio 2 has an expected return of 13% and a beta of 1.50. If the risk-free rate is 1.5%, which portfolio would a rational risk-averse investor prefer and why? O A. Portfolio 2 because it has the higher reward to risk ratio. O B. Portfolio 1 because it has the higher reward to risk ratio. OC. Portfolio 2 because it has the higher reward. O D. Portfolio 1 because it has the lower risk.
Imagine a feasible set of portfolios with two risky assets with a correlation of -1. What name did Harry Markowitz give to the portfolios on the upper arm of the sideways 'v'? The feasible set The portfolio possibility line. The optimum set The efficient set Previous Page Next Page
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Asset A has a standard deviation of 0.17, and asset B has a standard deviation of 0.52. Assets A and B have a correlation coefficient of 0.44. What is the standard deviation of a portfolio consisting with a weight of 0.40 in asset A, a weight of 0.24 in asset B, and the remainder invested in a risk-free asset? Give your answer to four decimal places.
If you plot the relationship between portfolio expected return and portfolio beta, what is the slope of the line that results? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) | Slope of the line %
Portfolio Suppose rA ~ N (0.05, 0.01), rB ~ N (0.1, 0.04) with pA,B = 0.2 where rA and rB are CCR’s. a) Suppose you construct a portfolio with 50% for A and 50% for B. Find the variance of the portfolio CCR. b) Find the portfolio expected gross return. c) Find the expected portfolio CCR.
PLEASE PUT IT IN EXCEL, IT HAS TO BE IN EXCEL NO OTHER WAY OTHER THEN IN EXCEL. USE EXCEL! Question 2: Consider two risky assets, S and B, with the following characteristics: E(rs) 9%, Os 20% E(TB) 5%, OB 5% and PBS - 1 a) Is it possible to combine the two assets a portfolio such that the portfolio has zero risk (i.e. zero standard deviation)? If so, what is the composition of the zero risk portfolio? b) Suppose that in addition to trading in the risky assets S and B, investors can also freely buy, sell or short-sell a risk-free asset with risk-free rate rf. What must be the risk-free rate re? What would happen otherwise?
There are two risky assets and a riskfree asset. The riskfree rate is 0.03. The first risky asset has expected rate of return 0.18 and standard deviation 0.3; the second risky asset 0.09 and 0.2. Their correlation is 0.1. A portfolio on the best feasible CAL has an expected return of 0.12. Then this portfolio's portfolio weight on the first risky asset is 0%. (Enter a percentage number and keep 3 decimal places).
Asset W has an expected return of 13.4 percent and a beta of 1.6. If the risk-free rate is 5.0 percent, complete the following table for portfolios of Asset W and a risk-free asset. (Do not round intermediate calculations and enter your expected return answers as a percent rounded to 2 decimal places, e.g., 32.16. Round your beta answers to 3 decimal places, e.g., 32.161.) Asset W has an expected return of 13.4 percent and a beta of 1.6. If the risk-free rate is 5.0 percent, complete the following table for portfolios of Asset W and a risk-free asset. (Do not round intermediate calculations and enter your expected return answers as a percent rounded to 2 decimal places, e.g., 32.16. Round your beta answers to 3 decimal places, e.g., 32.161.)
(Portfolio VaR) Suppose there are two investments A and B. Either investment A or B has a 4.5% chance of a loss of $15 million, a 2% chance of a loss of $2 million, and a 93.5% change of a profit of $2 million. The outcomes of these two investments are independent of each other.
Consider the following two assets: Asset Expected return Standard deviation of returns 1 18% 30% 2 8% 10% The returns on the two assets are perfectly negatively correlated (i.e. coefficient of -1). Calculate the proportions of assets 1 and 2 that generate a portfolio with a standard deviation of zero. What is the expected return of that portfolio?

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