Refer the table below on the average excess return of the U.S. equity market and the standard deviation of that excess return. Suppose that the U.S. market is your risky portfolio. Period 1927-2018 1927-1949 1950-1972 1973-1995 1996-2018 Average Annual Returns 1-Month T-Bills T-bills Equity U.S. equity 11.72 9.40 14.00 13.38 10.10 3.38 0.92 37.96 3.14 7.26 2.21 Answer is not complete. % % Excess return 8.34 8.49 10.86 6.11 7.89 U.S. Equity Market Standard Deviation 20.36 26.83 a. If your risk-aversion coefficient is A = 4 and you believe that the entire 1927-2018 period is representative of future expected performance, what fraction of your portfolio should be allocated to T-bills and what fraction to equity? Assume your utility function = E(r) - 0.5 x Ao². (Do not round intermediate calculations. Round your answers to 2 decimal places.) 17.46 18.43 18.39 Sharpe Ratio 0.41 0.32 0.62 0.33 0.43
Refer the table below on the average excess return of the U.S. equity market and the standard deviation of that excess return. Suppose that the U.S. market is your risky portfolio. Period 1927-2018 1927-1949 1950-1972 1973-1995 1996-2018 Average Annual Returns 1-Month T-Bills T-bills Equity U.S. equity 11.72 9.40 14.00 13.38 10.10 3.38 0.92 37.96 3.14 7.26 2.21 Answer is not complete. % % Excess return 8.34 8.49 10.86 6.11 7.89 U.S. Equity Market Standard Deviation 20.36 26.83 a. If your risk-aversion coefficient is A = 4 and you believe that the entire 1927-2018 period is representative of future expected performance, what fraction of your portfolio should be allocated to T-bills and what fraction to equity? Assume your utility function = E(r) - 0.5 x Ao². (Do not round intermediate calculations. Round your answers to 2 decimal places.) 17.46 18.43 18.39 Sharpe Ratio 0.41 0.32 0.62 0.33 0.43
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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Ef 301.
Transcribed Image Text:Refer the table below on the average excess return of the U.S. equity market and the standard deviation of that excess return.
Suppose that the U.S. market is your risky portfolio.
Period
1927-2018
1927-1949
1950-1972
1973-1995
1996-2018
T-bills
Equity
Average Annual Returns
1-Month
T-Bills
3.38
0.92
3.14
7.26
2.21
U.S. equity
11.72
9.40
14.00
13.38
10.10
T-bills
Equity
Answer is not complete.
a. If your risk-aversion coefficient is A = 4 and you believe that the entire 1927-2018 period is representative of future expected
performance, what fraction of your portfolio should be allocated to T-bills and what fraction to equity? Assume your utility function is u
= E(r) - 0.5 x Ao². (Do not round intermediate calculations. Round your answers to 2 decimal places.)
37.96 %
Answer is not complete.
88
Excess
return
b. If your risk-aversion coefficient is A = 4 and you believe that the entire 1973-1995 period is representative of future expected
performance, what fraction of your portfolio should be allocated to T-bills and what fraction to equity? (Do not round intermediate
calculations. Round your answers to 2 decimal places.)
%
8.34
8.49
10.86
6.11
7.89
34.33 %
U.S. Equity Market
Standard
Deviation
20.36
26.83
17.46
18.43
18.39
Sharpe
Ratio
0.41
0.32
0.62
0.33
0.43
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