You currently have $100,000 invested in aportfolio A that has an expected return of 12%and a volatility of 8%. Suppose the risk-freerate is 4%, and there is another portfolio Bthat has an expected return of 20% and avolatility of 12%. Is the portfolio A you holdnow efficient? If not, construct a portfolio thatoutperforms yours

This is a concept of Portfolio management where we need to compare different components to construct…

Answered: volatility of 12%. Is the portfolio 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 information: Portfolio Expected Return Beta Risk-free 5% 0 Market 12.4 1.0 A 10.4 1.7 Required: a. Calculate the return predicted by CAPM for a portfolio with a beta of 1.7. (Round your answer to 2 decimal places.) b. What is the alpha of portfolio A. (Negative value should be indicated by a minus sign. Round your answer to 2 decimal places.) c. If the simple CAPM is valid, is the situation above possible?
if asset A has lower volatility than asset B, then it contributes less to the overall volatility when added to a portfolio. True or false?
vvk.1 Portfilio A has an expected return of 12% and a beta of1.2. Portfolio B has an expected return of 5% and a beta of 0. suppose there exists another portfolio C that is well diversifed and has a beta of 0.6 and expected return of 8%. If arbitrage is possible, what would be the return?
the treynor index is an expression that represents how many units of reward an investor is given for each unit of volatility. a false b. maybe c. true d. it depends
Suppose that stocks are exposed to systematic risks only so that stock i has the following return structure: Ri,t = mį + Si,t where mi is the average return, and si,t is the systematic risk. When we construct a portfolio including more and more stocks, which of the following would happen? The portfolio volatility gradually decreases and eventually converges to a certain positive value. ● The portfolio volatility gradually decreases and eventually converges to zero. The portfolio volatility stays unchanged.
Calculate the expected return for an investment with the following probability distribution. Return (%) Probability (%) -10 20 5 20 10 20 17 30 26 10
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.
How do you find the market risk premium and market expected return given the expected return of stock, beta, and risk free rate? Example: The expected return of a stock with a beta of 1.2 is 16.2%. Calculate the market risk premium and the market expected return, given a risk-free rate of 3%.
Baghiben
Consider two well-diversified portfolios: Portfolio 1 has an expected return of 8% and a beta of 0.80 while Portfolio 2 has an expected return of 13% and a beta of 1.50. If the risk-free rate is 1.5%, which portfolio would a rational risk-averse investor prefer and why? O A. Portfolio 2 because it has the higher reward to risk ratio. O B. Portfolio 1 because it has the higher reward to risk ratio. OC. Portfolio 2 because it has the higher reward. O D. Portfolio 1 because it has the lower risk.
Description Provide the portfolio percentages to accomplish the following: 1. 5% chance of loosing at most $50,000 2. 5% chance of losing at most $75,000 3. Maximize the value of "Expected returns - 0,1*VaR"
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

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volatility of 12%. Is the portfolio A you hold now efficient? If not, construct a portfolio that outperforms yours