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%.

To solve this, we can use the concepts of combining risky and risk-free assets in a portfolio to…

Answered: You currently have $100,000 invested 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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Consider a portfolio that offers an expected rate of return of 13% and a standard deviation of 20%. T-bills offer a risk-free 4% rate of return. What is the maximum level of risk aversion for which the risky portfolio is still preferred to T-bills? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Maximum level of risk aversion must be
a) Suppose the risk-free rate is 1% and the expected rate of return on the market portfolio is 10%. In your view, the expected rate of return of a security is 12.2%. Given that this security has a beta of 1.4, do you consider it to be overpriced, under-priced or fairly priced according to the Capital Asset Pricing Model? Please provide the details of your calculations and discuss your results
The beta on risky asset A is 1.8 and the beta on risky asset B is 1.1. The expected return on the market portfolio is 10% and the risk free rate of return is 4%. Consider a portfolio comprising the two risky assets and the risk-free asset where you invest 50% in risky asset A and 30% in risky asset B. What is (i) the beta of a portfolio and (ii) the expected return of the portfolio? a None of the above b (i) 0.97 and (ii) 9.82% c (i) 1.23 and (ii) 9.82% d (i) 1.23 and (ii) 11.38% e (i) 0.97 and (ii) 11.38%
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
Suppose an investor uses two stocks A and B to build a risky portfolio. The following information is given: E(r_A)=10%,E(r_B)=12%,0_A=15%,o_B=20%, p_AB=0.4,r_f=2%. Denote the optimal risky portfolio investor can achieve with the highest Sharpe ratio by portfolio O. Calculate the weights of A and B (w_A and w_B) in the optimal risky portfolio O. Calculate the expected return and standard deviation of return for portfolio O. Calculate the Sharpe ratio of portfolio O.
There are two risky assets and a riskfree asset. The riskfree rate is 0.03. The first risky asset has expected rate of return 0.18 and standard deviation 0.3; the second risky asset 0.09 and 0.2. Their correlation is 0.1. A portfolio on the best feasible CAL has an expected return of 0.12. Then this portfolio's portfolio weight on the first risky asset is 0%. (Enter a percentage number and keep 3 decimal places).
You own a portfolio equally invested in a risk-free asset and two stocks. If one of the stocks has a beta of 1.25 and an expected return of 15%. The other stock has an expected return of 21%. The total portfolio is equally as risky as the market (i.e.Bp=1). What is the beta for the other stock in your portfolio? What is the expected return of the risk-free asset? What is the expected return of the market? What is the expected return of your portfolio?
Suppose now that your portfolio must yield an expected return of 13% and be efficient, that is, on the best feasible CAL. What is the proportion invested in the T-bill fund?
Consider the single factor APT. Portfolio A has a beta of 1.5 and an expected return of 20 %. Portfolio B has a beta of 0.7 and an expected return of 16%. The risk - free rate of return is 8%. If you wanted to take advantage of an arbitrage opportunity, you should take a short position in portfolio and a long position in portfolio
You manage a risky portfolio with an expected rate of return of 10% and a standard deviation of 34%. The T-bill rate is 4%. Suppose that your client prefers to invest in your fund a proportion y that maximizes the expected return on the complete portfolio subject to the constraint that the complete portfolio's standard deviation will not exceed 10%. Required: a. What is the investment proportion, y? b. What is the expected rate of return on the complete portfolio?
2. You are designing a risky portfolio based on two stocks, A and B. A has expected return of 15% and standard deviation of return 20%. B has expected return of 20% and standard deviation of return 10%. The correlation coefficient between A and B is 0.5. The risky free rate of return is 8%. The proportion of the optimal risky portfolio that should be invested in A is?
1. Suppose you have n risky assets you can combine in a portfolio. Each risky asset has an expected return of 8% and a standard deviation of 30%. The risky assets are uncorrelated with each other. (a) Consider an equally weighted portfolio of 2 of these securities. What is its expected return? What will its standard deviation be? (b) Consider an equally weighted portfolio of 30 of these securities. What is its expected return? What will its standard deviation be? (c) Suppose we let the number of these securities increase without bound. That is, n→ ∞o. What happens to the standard deviation of an equally weighted portfolio of these securities as the number of assets in the portfolio becomes extremely large? What will the riskless rate be in this case, and why? -int IDE

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