You can invest in a portfolio of two assets: the risk-free asset with a rate of return of 10%, and a risky portfolio with an expected return of 14% and a standard deviation of 35%. You optimally choose to invest equal amounts in the two assets. What is your utility?U = [____]

You can invest in a portfolio of two assets: the riskfree asset with rate of return 10%, and a risky portfolio with expected return 14% and stdev 35%. You optimally choose to invest equal amount in the two assets. What is your utility? U=

You can invest in a portfolio of two assets: the riskfree asset with rate of return 10%, and a risky portfolio with expected return 14% and stdev 35%. You optimally choose to invest equal amount in the two assets. What is your utility? U=

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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The expected return for Asset Y is 24%, and it has a standard deviation of 14%. The expected return for Asset Z is 14%, and it has a standard deviation of 9%. Which of the following is a CORRECT statement? Question 24 options: Asset Z is the riskier investment of the two investments. Asset Y is the riskier investment of the two investments.
Could you use formulas in order to get those answers, like the images I have attached to this follow-up questions?
In CAPM and your CAPM Project, the beta of AAPL was computed by regressing the returns of what Y= on what X= Y=S&P500 on X=AAPL ? Y=AAPL on X=Risk free rate Y=AAPL minus the Risk free rate on X=AAPL minus S&P none of the above
Assume you are risk-averse and have the following three choices. Standard Deviation Project A B C Expected Value $ 2,520 2,930 2,480 $ 1,420 1,050 1,040 a. Compute the coefficient of variation for each. Note: Round your answers to 3 decimal places. Project A B C Coefficient of Variation b. Which project will you select? O Project C O Project A O Project B
The expected value of an investment: Answer a. Is what the owner will receive when the investment is sold b. Is the sum of the payoffs c. Is the probability-weighted sum of the possible outcomes d. Cannot be determined in advance
What is the expected return of a portfolio of two risky assets if the expected return E(Ri), standard deviation (SDi), covariance (COVij), and asset weight (Wi) are as shown below? Asset (A) E(R₂) = 25% SDA = 18% WA = 0.75 COVA, B = -0.0009 Select one: A. 13.65% B. 20 U ODN 20.0% C. 18.64% D. 22.5% Asset (B) E(R₂) = 15% SDB = 11% WB = 0.25
Suppose the risk-free rate is 5%. The expected return and standard deviation of a risky asset are 10% and 20%, respectively. a. What is the slope of the capital allocation line (CAL) constructed using the risk-free asset and the risky asset? A. 0.30 B. 0.15 C. 0.25 D. 0.20 b. If an investor has a risk aversion coefficient of A=2, what is the optimal fraction of the money that she invests in the risky asset? A. 62.5% B. 42.5% C. 30% D. 20% c. If an investor invest 25% of her money in the risky asset, which is the investor’s risk aversion coefficient? a. 5 b. 1 c. 3 d. 4
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
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