Ross Law received an inquiry from a VIP client. The current risk free is 6% and market risk premium is 5%. Madelle, their top VIP, is preparing to invest P30,000 in the market and she wants her portfolio to have an expected return of 12.5%. She will be investing in 3 assets: 1) an aggressive growth mutual fund that has a beta of 1.6; 2) a PSEI index fund with a beta of 1.0; 3) a risk-free security with a beta of 0. She has decided to invest 10% of her money in the risk-free asset. In order to achieve the desired expected return of 12.5%, what is the portfolio beta? * Based on the above, what proportion must be invested in the PSEI index fund? *
Ross Law received an inquiry from a VIP client. The current risk free is 6% and market risk premium is 5%. Madelle, their top VIP, is preparing to invest P30,000 in the market and she wants her portfolio to have an expected return of 12.5%. She will be investing in 3 assets: 1) an aggressive growth mutual fund that has a beta of 1.6; 2) a PSEI index fund with a beta of 1.0; 3) a risk-free security with a beta of 0. She has decided to invest 10% of her money in the risk-free asset. In order to achieve the desired expected return of 12.5%, what is the portfolio beta? * Based on the above, what proportion must be invested in the PSEI index fund? *
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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Ross Law received an inquiry from a VIP client. The current risk free is 6% and market risk premium is 5%. Madelle, their top VIP, is preparing to invest P30,000 in the market and she wants her portfolio to have an expected return of 12.5%. She will be investing in 3 assets: 1) an aggressive growth mutual fund that has a beta of 1.6; 2) a PSEI index fund with a beta of 1.0; 3) a risk-free security with a beta of 0. She has decided to invest 10% of her money in the risk-free asset. In order to achieve the desired expected return of 12.5%, what is the portfolio beta? * Based on the above, what proportion must be invested in the PSEI index fund? *
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