Talal can pick one of two investment portfolios - A and B. Each requires an initial outlay of $100,000 and each has a most likely annual rate of return of 18%. Estimated the returns associated with each investment. Past estimates indicate that the probabilities of the bessimistic, most likely, and optimistic outcomes are 30%, 50%, and 20%, respectively. Note that the sum of these probabilities must equal 100%; that is, they must be based on all the alternatives considered. Question: 1. Explain him about risk aversion, risk neutrality and risk seeking on the bases of standard deviation and coefficient of variation. Details Asset A Asset B Initial Investment $100,000 $100,000 Rate of Return - Pessimistic 16% 10% Rate of Return - Most likely 18% 18% Rate of Return - Optimistic 20% 26%

Talal can pick one of two investment portfolios - A and B. Each requires an initial outlay of $100,000 and each has a most likely annual rate of return of 18%. Estimated the returns associated with each investment. Past estimates indicate that the probabilities of the bessimistic, most likely, and optimistic outcomes are 30%, 50%, and 20%, respectively. Note that the sum of these probabilities must equal 100%; that is, they must be based on all the alternatives considered. Question: 1. Explain him about risk aversion, risk neutrality and risk seeking on the bases of standard deviation and coefficient of variation. Details Asset A Asset B Initial Investment $100,000 $100,000 Rate of Return - Pessimistic 16% 10% Rate of Return - Most likely 18% 18% Rate of Return - Optimistic 20% 26%

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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An investment advisor has recommended a R50,000 portfolio containing assets R, J, and K; R25,000 will be invested in asset R, with an expected annual return of 12 percent; R10,000 will be invested in asset J, with an expected annual return of 18 percent; and R15,000 will be invested in asset K, with an expected annual return of 8 percent. What is the expected annual return of this portfolio? What is the correct answer? A. 12.01% B. 12.00% C. 11.98% D. 12.93%
Suppose that you have $1 million and the following two opportunities from which to construct a portfolio:a. Risk-free asset earning 12% per year.b. Risky asset with expected return of 30% per year and standard deviation of 40%.If you construct a portfolio with a standard deviation of 30%, what is its expected rate of return?
Asset W has an expected return of 13.15 percent and a beta of 1.28. If the risk free rate is 4.53 percent, complete the following table for portfollos of Asset W and a risk-free asset. Note: Leave no cells blank- be certain to enter "0" wherever required. Do not round intermediate calculations. Enter your portfolio expected return answers as a percent rounded to 2 decimal places, e.g., 32.16. Enter your portfolio beto answers rounded to 3 decimal places, e.g. 32.161. Percentage of Portfolio Expected Portfolio in Asset W Return 0% 25 50 25 100 125 150 453 % 669% 184% 11.00% 13.15 % 15.31% 17.46% Portfolio Beta 0250 0640 1024 1.200 6057 006
Assume that you have two investment alternatives: the first project produces $125 for sure, and the second project produces $150 with probability 2/5. You can borrow $110 from your financial institution for one project (investment) if you show an asset as a collateral. Suppose that you maximize your expected profit, what would be the minimum level of collateral that make you select the safe project?
A project under consideration has an internal rate of return of 18% and a beta of 0.5. The risk-free rate is 6%, and the expected rate of return on the market portfolio is 18%. a. What is the required rate of return on the project? (Do not round intermediate calculations. Enter your answer as a whole percent.) b. Should the project be accepted? c. What is the required rate of return on the project if its beta is 1.50? (Do not round intermediate calculations. Enter your answer as a whole percent.) d. If project's beta is 1.50, should the project be accepted?
Wolff Enterprises must consider one investment project using the capital asset pricing model (CAPM). Relevant information is presented in the following table. Item Rate of return Beta, b Risk-free asset 9% 0.00 Market portfolio 14% 1.00 Project 1.74 a. Calculate the required rate of return for the project, given its level of nondiversifiable risk. b. Calculate the risk premium for the project, given its level of nondiverisifiable risk.
An investor invests 70% of his wealth in a risky asset with an expected rate of return of 0.15 and a variance of 0.04. He also places 30% of his wealth in a T-bill that pays 5%. His portfolio's expected return and standard deviation are __________ and __________, respectively. Group of answer choices 0.120; 0.14 0.087; 0.06 0.295; 0.12 0.087; 0.12 0.895; 0.11
Consider a risky portfolio. The end-of-year cash flow derived from the portfolio will be either $150,000 or $290,000 with equal probabilities of 0.5. The alternative risk-free investment in T-bills pays 3% per year. Required: a. If you require a risk premium of 7%, how much will you be willing to pay for the portfolio? b. Suppose that the portfolio can be purchased for the amount you found in (a). What will be the expected rate of return on the portfolio? c. Now suppose that you require a risk premium of 12%. What price are you willing to pay? Complete this question by entering your answers in the tabs below. Required A Required B Required C If you require a risk premium of 8%, how much will you be willing to pay for the portfolio? Note: Do not round your intermediate calculations. Round your answer to the nearest whole dollar amount. Price Required A Required B >
Suppose you have a project that has a 0.6 chance of doubling your investment in a year and a 0.4 chance of halving your investment in a year. What is the standard deviation of the rate of return on this investment? (Do not round intermediate calculations. Enter your answer as a percentage rounded to 2 decimal places.) Answer is complete but not entirely correct. 40.99 Standard deviation %
Puji International Freight Company (PIFC) wishes to determine the required return on Asset J, which has a beta of 1.75. The risk-free rate of return is 6.4% and the return on the market portfolio of assets is 10.8%. Suppose PIFC is also considering investing in asset K, which has a beta of 1.8. Is there a market premium or market discount? Justify your answer. Determine the required return of assets J and K. Show your solutions. Interpret your answer. Graph the Security Market Line for both assets. Between assets J and K, can you determine which has more total risk and which has more market risk? Determine which stock has a higher cost of equity capital. If you are the financial consultant of PIFC, what will be your investment strategy?
Suppose that you have found the optimal risky combination using all risky assets available in the economy, and that this optimal risky portfolio has an expected return of 0.19 and standard deviation of 0.24. The T-bill rate is 0.05. What fraction of your money must be invested in the optimal risky portfolio in order to form a complete portfolio with an expected return of 0.09? Round your answer to 4 decimal places. For example, if your answer is 3.205 %, then please write down 0.0321..
Jerome J. Jerome is considering investing in a security that has the following distribution of possible one-year returns: Probability of occurrence 0.10 0.20 0.30 0.30 0.10 Possible return −0.10 0.00 0.10 0.20 0.30 a. What is the expected return and standard deviation associated with the investment?

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