You are evaluating various investment opportunities currently available and you have calculated expected returns and standard deviation for five different well-diversified portfolios of risky assets.PortfolioExpected return (%)Standard deviation (%)Q7.810.5R1014S4.6511.718.56.27.5a. For each portfolio, determine the Sharpe ratio. Assume that the risk free rate is 3%.b. Using your analysis in part (a), explain which of these five portfolios is most likely to be the market portfolio. Draw up the Capital Market Line Equation.c. If you are willing to make an investment with a standard deviation of 7%, is it possible for you to earn 7%?d. What is the minimum risk level that would be necessary for an investment to earn 7%. What is the composition of the portfolio along the CML that will generate the 7% return.e. Suppose you are now willing tf. Devise how would you apply portfolio performance evaluation and attribution analysis in practice. Illustrate with suitable example.make an investment with a standard deviation of 18.2%. Determine what would be the investment proportions in the risk free asset and market portfolio? Determine the expected return for this portfolio.

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Answered: You are evaluating various investment…

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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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
You are constructing a portfolio of two assets, Asset A and Asset B. The expected returns of the assets are 12 percent and 16 percent. respectively. The standard deviations of the assets are 29 percent and 37 percent, respectively. The correlation between the two assets is 41 and the risk-free rate is 3.4 percent. What is the optimal Sharpe ratio in a portfolio of the two assets? What is the smallest expected loss for this portfolio over the coming year with a probability of 2.5 percent? (A negative value should be indicated by a minus sign. Do not round intermediate calculations. Round your Sharpe ratio answer to 4 decimal places and the z-score value to 3 decimal places when calculating your answer. Enter your smallest expected loss as a percent rounded to 2 decimal places.) Sharpe ratio Smallest expected loss %
Vijay
Consider the following two assets: Asset Expected return Standard deviation of returns 1 18% 30% 2 8% 10% The returns on the two assets are perfectly negatively correlated (i.e. coefficient of -1). Calculate the proportions of assets 1 and 2 that generate a portfolio with a standard deviation of zero. What is the expected return of that portfolio?
b. As an equity portfolio manager, you may use certain risk-adjusted performance measures. Describe and discuss the following measures of performance evaluation! Treynor Index, William Sharpe, Michael Jensen Using the following table evaluate which is better than other using three different measure of performance evaluation. Asset X E(R)% 12 beta Stdv 1.25 16 Y 11 1.0 12 Risk-free 3 0 0 Market index 12 1 12
Following is information for the required returns and standard deviations of returns for A, B, and C. The correlation coefficients for each pair also are shown below in a matrix. Which is the portfolio you will recommend AB, AC, or BC, and why? A B C Required Rate of return 7% 10% 20% Standard Deviation 33% 54% 90% Coefficient A,B 0.16 Coefficient A,C 0.19 Coefficient B,C 0.17
Considering the attached set of securities and portfolio returns: Find the combination of the weights that minimizes CV of the portfolio. How does the CV of the optimal portfolio compare with the CVs of its constituents?
2
Assume that the risk-free rate, RF, is currently 9% and that the market return, rm, is currently 16%. a. Calculate the market risk premium. b. Given the previous data, calculate the required return on asset A having a beta of 0.4 and asset B having a beta of 1.8.
Calculate the required rate of return for an asset that has a beta of 1.01, given a risk-free rate of %3.4 and a market return of %9.1 . b. If investors have become more risk-averse due to recent geopolitical events, and the market return rises to %11.6, what is the required rate of return for the same asset? a. The required rate of return for the asset is enter your response here%. (Round to two decimal places.) Part 2 b. If investors have become more risk-averse due to recent geopolitical events, and the market return rises to 11.6%, the required rate of return for the same asset is enter your response here%. (Round to two decimal places.)
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An asset has normally-distributed returns, with mean of 10.6% and standard deviation of 14.8%. What is the 2% VaR (value at risk) return? Enter answer in percents.

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