Two risky assets: A and B. The expected return for A is 15% and for B 30%. The variance for returns for A is 200(%2) and for B is 800(%2). The covariance between A and B returns is -0.05. T-bills give a return of 5% with a standard deviation of 0%. The investor has a risk aversion index, A=5.0. Show all work.    1. calculate the correlation between A and B 2. calculate portfolio return / standard deviation for global mvp 3. optical risky portfolio, P (expected return and SD) 4. slope of CAL 5. how much will the investor invest (A=4) in T-bills, assets A and B?

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
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Two risky assets: A and B.

The expected return for A is 15% and for B 30%.

The variance for returns for A is 200(%2) and for B is 800(%2).

The covariance between A and B returns is -0.05.

T-bills give a return of 5% with a standard deviation of 0%.

The investor has a risk aversion index, A=5.0. Show all work. 

 

1. calculate the correlation between A and B

2. calculate portfolio return / standard deviation for global mvp

3. optical risky portfolio, P (expected return and SD)

4. slope of CAL

5. how much will the investor invest (A=4) in T-bills, assets A and B?

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