You have constructed a well-diversified active portfolio A that inhibits the followingsecurity characteristic line on excess returns: R(A) = alpha_a + b_a*(rSP - rf), wherealpha_a = -0.04. b_a = 1.4. rSP is the return on the S&P500 and rf is the risk-free rate.What tracking portfolio T would you construct? To answer the question: Enter the %you would hold in rSP. If you long the rSP, enter a positive number. If you short rSP,enter a negative number.

1. Active Portfolio CharacteristicsThe active portfolio AAA has the following characteristic line:…

Answered: You have constructed a well-diversified…

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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= UDY_Jan... MANCOSA All tools Edit Convert Sign 76 IT PGDPM___Pr... PGDPM_Proj... Project_Proje... Rubric_CSTU... 3.2.Required Calculate the following from the information provided below: 3.2.1.Net profit or loss 3.2.2. The number of units that must be sold to obtain a profit of R1 000 000. INFORMATION The following projected figures were obtained from Drake Traders: Sales (50 000 units @ R24) Variable cost Fixed cost 69 zoom PROJ_Jan23_PGDPM_P... X R 1 200 000 280 000 88 600 Find text or tools Q + Create (3) (4) : 0) U & < 1:32 AM 9/17/2023 X យ 4 3 U 3
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Which of the following statements is correct? A delta-neutral portfolio is protected against large changes in the underlying asset price. The delta hedging error increases as gamma decreases. To change the vega of a portfolio, we need to trade the portfolio’s underlying asset. A delta-neutral portfolio needs to be rebalanced more frequently as the gamma increases to maintain delta-neutrality. Please explain and justify your choice using your own words.
The portfolio with the highest Sharpe Ratio is I. The minimum-variance point on the efficient frontier II. The tangency point of the capital market line and the efficient frontier III. The maximum-return point on the efficient frontier IV. The line with the steepest slope that connects the risk-free rate to the efficient frontier Select one: a. II and IV only b. I and IV only c. III and IV only d. Only IV e. I and II only
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4. What follows are several portfolios; each is denoted by the term Port. Graph the profit curve at t = T for each of them. Determine the strengths and weaknesses of each portfolio. Namely, explain what a reasonable investor must be expecting to adopt each portfolio. In this listing, CE denotes a Call with strike price E, -CE represents going short on a Call-the Call was sold, PE is a put, -PE is going short on a put, and the numbers E indicate the strike price. (a) A "Long Call" is Port = CE- (b) A "Short Call" is Port = -CE. (c) A "Long Put" is Port = PE. (d) A "Short Put" is Port = - PE. (e) A "Long Straddle" is Port = PE + C£; namely, buy both a Put and Call with the same strike price. (f) A "Short Straddle" is Port = -P - C. (g) A "Long Strangle" is Port = P£₁ +C£₂; namely, it is a purchase of a put at strike price E₁, which is less than the strike price of a Call at E2 (h) a "Short butterfly" is Port = −CE₁ +2CE₂ - CE3 where E₁ < E₂ < E3. (i) A "Long butterfly" is Port = CE₁…
Answer whether each of the following statements is correct and explain your argument. \ (a) According to CAPM, the expected return of a risky asset is larger than the risk free rate. (b) According to CAPM, the expected return of a risky asset increases with its variance. (c) According to the separation property, the optimal risky portfolio for an investor dependson the investor’s personal preference. (d) A less risk-averse investor has a steeper indifference curve for the utility function.
ANSWER C AND D PLEASE ONLY 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.a) What are risk preferences of this investor, are they risk-averse, riskneutral or risk-loving?b) Find A as a function of w. c) Does the investor put more or less of his portfolio into the risky assetas his wealth increases? d) Now find the share of wealth, α, invested in the risky asset. How doesα change with wealth?
The optimal proportion of the risky asset in the complete portfolio is given by the equation below y*= E(Rp− Rf) A0² For each of the variables on the right side of the equation, discuss the impact of the variable's effect on y* and why the nature of the relationship makes sense intuitively. Assume the investor is risk averse
Assume you own a portfolio of diverse securities each of which is correctly priced. Given this, the reward-to-risk ratio: of each security must equal the slope of the security market line. for the portfolio must equal 1.0. for the portfolio must be less than the market risk premium.
Construct a plausible graph that shows risk (asmeasured by portfolio standard deviation) on thex-axis and expected rate of return on the y-axis.Now add an illustrative feasible (or attainable) setof portfolios and show what portion of the feasibleset is efficient. What makes a particular portfolioefficient? Don’t worry about specific values whenconstructing the graph—merely illustrate howthings look with “reasonable” data

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