. The following questions are related to modern portfolio theory.• Assume there are only two stocks in the equity market.•The risk-free rate is 1.00%.Stock Return Volatility Correlation MatrixY0.71.0XYX15.00% 20.00% 1.010.00% 15.00% 0.7(a) Make an investment portfolio using the risky assets that has an expected return12%.(b) Calculate the volatility of the portfolio in (a).

1. Expected return of portfolio comprising of two risky assets or stocks is computed by following…

The following questions are related to modern portfolio theory. • Assume there are only two stocks in the equity market. •The risk-free rate is 1.00%. Stock Return Volatility Correlation Matrix Y 0.7 1.0 X X 15.00% 20.00% 1.0 Y 10.00% 15.00% 0.7 (a) Make an investment portfolio using the risky assets that has an expected return 12%. (b) Calculate the volatility of the portfolio in (a).

The following questions are related to modern portfolio theory. • Assume there are only two stocks in the equity market. •The risk-free rate is 1.00%. Stock Return Volatility Correlation Matrix Y 0.7 1.0 X X 15.00% 20.00% 1.0 Y 10.00% 15.00% 0.7 (a) Make an investment portfolio using the risky assets that has an expected return 12%. (b) Calculate the volatility of the portfolio in (a).

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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Consider the following portfolio choice problem. The investor has initial wealth w andutility u(x) = (x^n) /n. There is a safe asset (such as a US government bond) that has netreal return of zero. There is also a risky asset with a random net return that has onlytwo possible returns, R1 with probability 1 − q and R0 with probability q. We assumeR1 < 0, R0 > 0. Let A be the amount invested in the risky asset, so that w − A isinvested in the safe asset.i) What are risk preferences of this investor, are they risk-averse, riskneutral or risk-loving?ii) Find A as a function of w.
Baghiben
As the number of stocks in a portfolio decrease, the portfolio's unsystematic risk will O A. increase O B. O C. D. increase 1 decrease / decrease / increasing decreasing increasing decreasing at a/an rate.
Baghiben
Please advise
Assume that the following two assets are priced according to the zero-beta security market line: asset 1 has expected return of 6% and beta 0.5; asset 2 has expected return 14% and beta 2. (i) A third asset is mispriced by the market: it has beta 1.5 and expected return of 8%. Explain how you can set up a portfolio to exploit the arbitrage opportunity. What is the expected return of such portfolio? [33%] (ii) A fourth asset is mispriced by the market: it has beta 1.2 and expected return of 18%. Explain how you can set up a portfolio to exploit the arbitrage opportunity. What is the expected return of such portfolio? [33%] (iii) What should be the expected return for an asset with beta 0.8?
Draw the profit diagram of the portfolio just drawn (and clearly state any assumptions you make). The profit is equal to the difference between the payoff of the portfolio at expiry (maturity) date and the cost of the portfolio. Is the cost of the portfolio positive?
Suppose a portfolio is given as follows: Investment Name ABC Corn Mill X-Treme Manufacturing b.) 3.6% Ob.) none listed a.) none listed a.) 4.5% a.) 4% b.) 4% b.) 3.4% Weight a.) 5% 0.4 0.6 a.) What is the expected return of the portfolio? b.) What is the standard deviation of the portfolio if the correlation is +0.4? Select the most appropriate responses below for parts a.) and b.). Expected Return 2% 7% Standard Deviation 2% 5%
The Capital Asset Pricing Model (CAPM) says that the risk premium on a stock is equal to its beta times the market risk premium. ..... True False
Suppose you have an investment portfolio with fraction x invested in a market portfolio and (1-x) in a risk- free asset. Increasing fraction x invested in the market portfolio and consequently decreasing (1-x) invested in the risk-free asset shall (select any correct answer, if there are multiple correct answers) Select one or more: O decrease the Sharpe ratio of the resulting portfolio O decrease the expected return of the resulting portfolio increase the Sharpe ratio of the resulting portfolio increase the expected return of the resulting portfolio Dincrease the risk of the resulting portfolio
choose which one ? 3.Assume CAPM holds. What is the correlation between an efficient portfolio and the market portfolio?a.1b.-1c.0d.Not enough information
The expected returns of a portfolio are influenced by several factors that investors should consider whenconstructing and managing their investment portfolios. discussesthe factors that affect expected returns of a portfolio.

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