Suppose you have the following inputs: TSX/S&P Return = 20 - MSCI -World Index Return =18 Variance of the Canadian index =30 Variance of the World index = 26 Correlation coefficient p = .60 Risk free = 2 Assume that the weight on the optimal portfolio is .554 for the TSX. And that the standard deviation of the optimal portfolio is 4.76 The extra return the investor would receive by investing in the optimal portfolio but maintaining the same level of risk associated with the domestic (Canadian) market (TSX) would be

Suppose you have the following inputs: TSX/S&P Return = 20 - MSCI -World Index Return =18 Variance of the Canadian index =30 Variance of the World index = 26 Correlation coefficient p = .60 Risk free = 2 Assume that the weight on the optimal portfolio is .554 for the TSX. And that the standard deviation of the optimal portfolio is 4.76 The extra return the investor would receive by investing in the optimal portfolio but maintaining the same level of risk associated with the domestic (Canadian) market (TSX) would be

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter3: Risk And Return: Part Ii

Section: Chapter Questions

Problem 2P: APT An analyst has modeled the stock of Crisp Trucking using a two-factor APT model. The risk-free...

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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)
a. Use the following information: E[rXOM] = 15.6%, standard deviationXOM = 15.9% E[rMS]=29.7%, standard deviationMS = 35.2% Correlation of returns: ρXOM,MS = 0.139, rf=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) b. When choosing the best point of the POS (the curved line connecting two possible assets you can invest in) you need to find the point that: 1.Has the greatest difference between it’s return and the risk free rate, thus leading to the best return 2. You must solve for the optimal y allocation in order to find the best point on the POS 3. The point with the lowest standard deviation 4. The point with the greatest Sharpe ratio
Consider a single-index model economy. The index portfolio M has E(RM ) = 6%, σM = 18%.An individual asset i has an estimate of βi = 1.1 and σ2ei = 0.0225 using the single index modelRi = αi + βiRM + ei. The forecast of asset i’s return is E(ri) = 12%. rf = 4%. a) According to asset i’s return forecast, calculate αi. (b) Calculate the optimal weight of combining asset i and the index portfolio M . (c) Calculate the Sharpe ratio of the index portfolio M and the portfolio optimally combiningasset i and the index portfolio M .
Please answer asap Suppose you create a minimum-variance portfolio by combining two perfectly negatively correlated stocks, CRT and DMV. The expected return is 20% on CRT and 10% on DMV. The standard deviation is 20% for CRT and 15% for DMV. What is the standard deviation of your portfolio? A. 0.14 B. 0.16 C. 0.01 D. 0.12
Suppose that optimal risky portfolio has an expected return of 16% and a varianceof 0.04. The risk-free rate is 4%.a) Find the slope of Capital Market Line (Optimal Capital Allocation Line)?b) What is the expected return of a portfolio C, which is on Capital Market Line and has astandard deviation of 0.08?
1. Given the following summary statistics, Mean S.D. 1.235 0.997 Asset A 0.52 Asset B. 0.44 (a) If the correlation between the two financial series is 0.25. What are the optimal portfolio weights to minimize risk? (b) What are the expected return and standard deviation of the optimal port- folio? (c) Compute the 1% Value-at-Risk for the next 5 days (d) Compute the expected shortfall
c. Suppose the risk-free rate is 4.2 percent and the market portfolio has an expected return of 10.9 percent. The market portfolio has a variance of .0382. Portfolio Z has a correlation coefficient with the market of .28 and a variance of .3285. According to the capital asset pricing model, what is the expected return on Portfolio Z?
Calculate the optimal risky portfolio for the following case when short-sales are allowed. Compute its expected return and the standard deviation of its returns. RF = 5, R = [16,9, 5, 23, 7, 10], and %3D [40 7 6 23 17 0. 0. 0 35 8 19 11 20 10 18 40 92 26 6. Σ 4 27 72 13 19 34 20 40 3 0 -20 10 20 22 45 -5 11
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An optimal risk portfolio’s expected return is 14%, standard deviation is 22%. If risk-free rate is 6%, then what would be slope of the best CAL? A) 0.64B) 0.14C) 0.08D) 0.33E) 0.36
. Assume that you manage a risky portfolio with an expected rate ofreturn of 18% and a standard deviation of 28%. The T-bill rate (risk-free rate) is 7%. Yourclient chooses to invest 70% in the risky portfolio in your fund and 30% in a T-bill moneymarket fund. We assume that investors use mean-variance utility: U = E(r) − 0.5 × Aσ2,where E(r) is the expected return, A is the risk aversion coefficient and σ2is the variance ofreturns.a) What is the expected value and standard deviation of the rate of return on your client’sportfolio? b) What is the reward-to-volatility ratio (Sharpe ratio) of your risky portfolio? What isthe reward-to-volatility ratio (Sharpe ratio) of your client’s risky portfolio? Commenton the relationship between these two Sharpe ratio calculated and explain the intuitionbehind. c) Draw the Capital Allocation Line (CAL) of your portfolio on an expected returnstandard deviation diagram. What is the slope of the CAL? Show the position ofyour client on your fund’s CAL.…
Consider the following information for four portfolios, the market, and the risk-free rate (RFR): Portfolio Return Beta SD A1 0.15 1.25 0.182 A2 0.1 0.9 0.223 A3 0.12 1.1 0.138 A4 0.08 0.8 0.125 Market 0.11 1 0.2 RFR 0.03 0 0 Refer to Exhibit 18.6. Calculate the Jensen alpha Measure for each portfolio. a. A1 = 0.014, A2 = -0.002, A3 = 0.002, A4 = -0.02 b. A1 = 0.002, A2 = -0.02, A3 = 0.002, A4 = -0.014 c. A1 = 0.02, A2 = -0.002, A3 = 0.002, A4 = -0.014 d. A1 = 0.03, A2 = -0.002, A3 = 0.02, A4 = -0.14 e. A1 = 0.02, A2 = -0.002, A3 = 0.02, A4 = -0.14