You are considering investing $1,000 in a complete portfolio. The complete portfolio is composedof Treasury bills that pay 5% and a risky portfolio, P, constructed with two risky securities, X andY. The optimal weights of X and Y in P are 60% and 40% respectively. X has an expected rate ofreturn of 14%, and Y has an expected rate of return of 10%. To form a complete portfolio with anexpected rate of return of 8%, you should invest approximatelyin the risky portfolio.This will mean you will also invest approximatelyportfolio in security X and Y, respectively.andof your complete0%; 60%; 40%25%; 45%; 30%40%; 24%; 16%50%; 30%; 20%

Expected return of risky portfolio = 0.60*14 + 0.40*10 % = 12.40% let the investment in a risky…

Answered: You are considering investing $1,000 in…

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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You are considering investing $1,000 in a complete portfolio. The complete portfolio is composed of Treasury bills that pay 5% and a risky portfolio, P, constructed with two risky securities, X and Y. The optimal weights of X and Y in P are 60% and 40%, respectively. X has a return volatility of 25%, and Y has a return volatility of 30%. The correlation between X and Y is -0.2. If you decide to hold a complete portfolio that has a return volatility of 15%, how much should you invest in the Treasury bills? $1,000 $687 $130 $220
You are considering investing $1000 in a complete portfolio. The complete portfolio is composed of Treasury notes that pay 5% and a risky portfolio, P, constructed with two risky securities X and Y. The optimal weights of X and Y in P are 60% and 40% respectively. X has an expected rate of return of 14% and Y has an expected rate of return of 10%. To form a complete portfolio with an expected rate of return of 11%, you should invest ________ of your complete portfolio in Treasury notes.
You are considering investing $1,000 in a complete portfolio. The complete portfolio is composed of Treasury bills that pay 5% and a risky portfolio, P, constructed with two risky securities, X and Y. The optimal weights of X and Y in P are 60% and 40%, respectively. X has an expected rate of return of 14%, and Y has an expected rate of return of 10%. If you decide to hold 25% of your complete portfolio in the risky portfolio and 75% in the Treasury bills, then the dollar values of your positions in X and Y, respectively, would be and A. $300; $450 B. $150; $100 C $100; $150 D. $450; $300
1. You are considering investing $1000 in a complete portfolio. The complete portfolio is composed of Treasury bills that pay 2% and a risky portfolio, P, constructed with two risky securities, X and Y. The optimal weights of X and Y in P are 15% and 85%, respectively. X has an expected rate of return of 15%, and Y has an expected rate of return of 30%. The dollar values of your position in X would be _________, if you decide to hold a complete portfolio that has an expected return of 24%. 2. You are considering investing $1000 in a complete portfolio. The complete portfolio is composed of Treasury bills that pay 2% and a risky portfolio, P, constructed with two risky securities, X and Y. The optimal weights of X and Y in P are 15% and 85%, respectively. X has an expected rate of return of 15%, and Y has an expected rate of return of 30%. The dollar values of your position in Y would be _________, if you decide to hold a complete portfolio that has an expected return of 24%. 3. You are…
Suppose that a portfolio consist of three securities: A, B and C with expected rates of return of 5%, 9% and 14% respectively. Find the expected rate of return on each of the following two portfolios of these securities: Portfolio A where wA = WB = Wc Portfolio B where wA = WB = 2wc Assume that you currently have $10,000 and that the risk of each portfolio is 10%. Which portfolio which you choose and why? b) How much will you have invested in each security in each instance? c) What is the expected value of the portfolio one year from today? d) What is the expected return on the portfolio in $ terms, assuming no taxes nor fees?
You currently have $100,000 invested in a portfolio that has an expected return of 10% and a volatility of 10%. Suppose the risk-free rate is 5% , and there is another portfolio has an expected return of 24% and a volatility of 13%. a. What portfollo has a higherhigher expected return than your portfollo but with the same volatility? The portfolio should be composed of $ in the other portfolio, and $_____ in the risk-free investment (round to the nearest dollar). What is your expected return? % b. What portfolio has a lowerlower volatility than your portfollo but with the same expected return? You should invest $_____ in the other portfolio and $_______ in the risk-free investment, lowering your volitility to %.
Suppose that you currently have $100,000 invested in a portfolio with an expected return of 13% and a volatility of 8%. The efficient (tangent) portfolio has an expected return of 17% and a volatility of 10%. The risk-free rate of interest is 1%. Suppose that you want to keep the expected return equal to the current rate of 13%. Accordingly, the level of risk you can expect is: 1.00% 3.75% 4.75% 5.15% None of the above
You are considering investing $1,000 in a T-bill that pays 4% and a risky portfolio, P, constructed with two risky securities, X and Y. The weights of X and Y in P are 30% and 70%, respectively. X has an expected rate of return of 13% and a standard deviation of 20%, and Y has an expected rate of return of 10% and a standard deviation of 14%. If you want to form a portfolio with an expected rate of return of 10%, what percentages of your money must you invest in the T-bill, X, and Y. respectively, if you keep X and Y in the same proportions to each other as in portfolio P? [Select] If the correlation coefficient between X and Y is 0.15 then what is the standard deviation of the complete portfolio? [Select]
Suppose the total risk of Portfolios A, B and C are 49% ², 64%² and 100% ² respectively. The market price of risk is 8%. The Market Portfolio (M) has an expected return and a total risk of 11% and 100% respectively. (a) You want to form another Portfolio H by investing $7,000 in Portfolio A and $3,000 in Portfolio B. Compute the standard deviation of Portfolio H if the correlation coefficient between Portfolio A and Portfolio B is: i) perfectly positively correlated ii) uncorrelated iii) perfectly negatively correlated (b) If the expected return of Portfolio C is 9.4% and it is lying on the Securities Market Line, what is the beta of Portfolio C? State the answer in %². (c) Is Portfolio C a Market Portfolio as it has same level of total risk (i.e. 100% 2) as the Market Portfolio? Why or Why not?
Assume that you manage a risky portfolio with an expected rate of return of 14% and a standard deviation of 30%. The T-bill rate is 6%. Your client decides to invest in your risky portfolio a proportion (y) of his total investment budget with the remainder in a T-bill money market fund so that his overall portfolio will have an expected rate of return of 13% a. What is the proportion y? (Enter your answer as a decimal number rounded to 2 decimal places.) Proportion y b. What is the standard deviation of the rate of return on your client's portfolio? (Enter your answer as a percentage rounded to two decimal places.) Standard % per year deviation
You manage a risky portfolio with an expected rate of return of 17% and a standard deviation of 28%. The T-bill rate is 7%. Your client's degree of risk aversion is A = 2.0, assuming a utility function u E(r) = A0². a. What proportion, y, of the total investment should be invested in your fund? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Investment proportion y Expected return Standard deviation - % b. What are the expected value and standard deviation of the rate of return on your client's optimized portfolio? (Do not round intermediate calculations. Round your answers to 2 decimal places.) % %
You currently have $100,000 invested in a portfolio A that has an expected return of 12% and a volatility of 8%. Suppose the risk-free rate is 4%, and there is another portfolio B that has an expected return of 20% and a volatility of 12%. Is the portfolio A you hold now efficient? If not, construct a portfolio that outperforms yours

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