Using the market portfolio and risk free asset, you decided to construct a new portfolio N that hasthe same expected return as the portfolio X. Which of the following portfolios is better (Portfolio Xvs Portfolio N)?O Portfolio XO Portfolio NO Cannot determine (CAPM Set-up for Questions 15 to 20]Your current portfollo consists of three assets, the common stock of Citi group (c) and Kellogg Co. (k)combined with an investment in the risk free asset. You know the following about the stocks (p_ijdenotes the correlation between asset i and j, oi denotes the standard deviation of asset i, and mdenotes the market portfolio):p_cm 0.3, p_k.m = 0.4O.C = 0.8, o_k 0.5You also have the following information about the market portfolio, and the risk free asset.f:Elr_m) - 0.13, rf 0.04am 0.2.Assume that Individuals can borrow and lend at riskfree rater_f and that the Capital Asset PricingModels (CAPM) describes expected returns on assets. You have $200,000 Invested in Citi group,$200,000 invested In Kellogg, and $100,000 invested in the riskless asset. Call this portfolo X.

If an investor holds more than one security then we call it a portfolio investment. It is very…

Using the market portfolio and risk free asset, you decided to construct a new portfolio N that has the same expected return as the portfolio X. Which of the following portfolios is better (Portfolio X vs Portfolio N)? O Portfolo X O Portfolio N O Cannot determine

Using the market portfolio and risk free asset, you decided to construct a new portfolio N that has the same expected return as the portfolio X. Which of the following portfolios is better (Portfolio X vs Portfolio N)? O Portfolo X O Portfolio N O Cannot determine

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.
Hedging a portfolio a. Will generate above average returns when options expire b. none of the answers given c. Will generate below average returns when options expire without being used d. Will generate riskless payoffs when options expire
A beta of 1.0 represents an asset that O is less responsive than the market portfolio has the same response as the market portfolio O is unaffected by market movement O is more responsive than the market portfolio
Assume a utility function of ? = ?[?] − 1 ?? 2. Which statement(s) is/are correct about investors with this utility function? [I] An investor with a higher degree of risk aversion chooses the optimal portfolio with a higher risk premium [II] An investor with a higher degree of risk aversion chooses the optimal portfolio with lower risk [III] An investor with a higher degree of risk aversion chooses the optimal portfolio with a higher sharpe ratio [IV] The extent to which the investor dislikes risk is captured by ? 2 A. [II] only B. [I], [II] only C. [III] , [IV] only D. [II], [IV] only E. [I], [II], [III] only
Imagine a feasible set of portfolios with two risky assets with a correlation of -1. What name did Harry Markowitz give to the portfolios on the upper arm of the sideways 'v'? The feasible set The portfolio possibility line. The optimum set The efficient set Previous Page Next Page
At a minimum, which of the following would you need to know to estimate the amount of additional reward you will receive for purchasing a risky asset instead of a risk-free asset? 1. I. Asset's standard deviation 2. II. Asset's beta 3. III. Risk-free rate of return 4. IV. Market risk premium I, III, and IV only I, II, III, and IV I and III only II and IV only III and IV only ооо O
You are testing the no-arbitrage principle of the APT, and you find a well-diversified portfolio with a β of 0.9 with respect to the market portfolio, M. You also have a risk-free asset, rf. Create a mimicking portfolio and show that it’s beta is also 0.9.
Consider the following portfolio choice problem. The investor has initial wealth w and utility u(x)=. There is a safe asset (such as a US government bond) that has net real return of zero. There is also a risky asset with a random net return that has only two possible returns, R₁ with probability 1-q and Ro with probability q. We assume R₁ 0. Let A be the amount invested in the risky asset, so that w - A is invested in the safe asset. 1) Does the investor put more or less of his portfolio into the risky asset as his wealth increases?
i need the answer quickly
Which of these are true about the Security Market Line and Capital Market Line models? 1. the intercepts are the same 2. the independent variable for the Capital Market Line is beta 3, the Capital Market Line applies to portfolios only O 1 and 2 only O 2 only O 1 and 3 only O 2 and 3 only O 3 only
A diagram of the CML and SML for the market M, risk-free asset ry, an inefficient portfolio P, and a complete portfolio C is shown below. The diagram is not to scale. E(r) E(13) CML & CALP E(12) P C E(r) M 01 02 03 P βρ SML M Вм The values of the labeled variables are E[1] = 3.0%, E[12] = 10.3%, E[3] = 16.7%, σ₁ = 17.9%, σ = 30.0%, 03 = 44.3%. What is the standard deviation of nonsystematic risk for the complete portfolio σc under the CAPM? O a. 0.1374 O b. 0.1180 O c. 0.0988 d. 0.1105 O e. 0.0791 O f. 0.0913 Og. 0.0858 O h. 0.1443
ich of the following will not reduce risk in a portfolio? Select one: a. Selecting two securities that are perfectly positively correlated. b. Selecting two securities that are positively correlated. c. Selecting two securities that are perfectly negatively correlated. d. Selecting two securities that are negatively correlated.

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