You have two shares X and Y with the following characteristics, assessed according toa number of probable economic states:Expected Return of XStateProbabilityin each stateRecession40%15%Status QuoBoom25%25%35%15%Expected Return of Yin each state10%-25%25%You decide to construct a portfolio P by holding 1/3 of X and 2/3 of Y. Solve for theexpected return for X and Y. Then compute the expected return for the portfolio.A security has a beta of 1.28. The risk-free rate is 3.15% and the market expected returnis 13.5%. Infer the return that you expect to be compensated given the systematic risk.Discuss the risk components of the portfolio for an investor.

To determine the expected returns of shares X and Y, we calculated the weighted average return for…

Answered: You have two shares X and Y with the…

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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Portfolio theory with two assets E(R1)=0.15 E(01)= 0.10 W1=0.5 E(R2)=0.20 E(02) = 0.20 W2=0.5 Calculate the expected return and the standard deviation of the two portfolios if r1,2 = 0.4 and -0.60 respectively.
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
Suppose you are considering investing your entire portfolio in three assets A, B and C. You expect that after you invest, four possible mutually exclusive scenarios will occur, with associated returns (in %) for each of the three assets as listed below. The probability of each scenario is given below. A B C Probabilities return 0.05 0.50% -3.60% 3.60% 0.35 0.60% 2.75% 0.15% 0.45 3.66% 1.45% 0.45% 0.15 -4.80% -0.60% 6.30% Find the expected returns and standard deviations of Asset A, B & C. (HINT: the expected return is given by the probability-weighted sum of returns in each scenario. The expected standard deviation is given by the square root of the probability-weighted sum of squared deviations from the expected return.) Is there any reason to invest in Asset A given its low expected return and high standard deviation?
You are given the following information concerning three portfolios, the market portfolio, and the risk-free asset: Portfolio X Y Z Market Risk-free Rp 14.0% 13.0 .8.5 12.0 7.2 Ор 39.00% 34.00 24.00 29.00 0 Bp 1.50 1.15 0.90 1.00 0 Assume that the correlation of returns on Portfolio Y to returns on the market is 0.90. What percentage of Portfolio Y's return is driven by the market? Note: Enter your answer as a decimal not a percentage. Round your answer to 4 decimal places. R-squared
A3
2.
Certainty equivalents in portfolio theory
Baghiben
Consider two assets, A and B. A earns +4%, -5%, or +3%, in scenarios 1, 2, and 3. B earns -5%, +3%, or +4%, in scenarios 1, 2, and 3. Each scenario is equally likely. Compute the expected rates of return and SD for each asset, A and B. Now, consider a portfolio of assets A and B called AB, where the investor holds fraction 59% of his portfolio in A and fraction (1-59%) in B. Compute the standard deviation of AB. Compare the new standard deviation to that of each asset's individual standard deviation. What was the change in standard deviation between asset A and portfolio AB? StDev(AB) - StDev(A). Report answer to the four decimal place.
You are given the following Information concerning three portfollos, the market portfolio, and the risk-free asset Portfolio Rp Op X 13.0% Y 12.0 Z Market Risk-free 7.2 11.0 5.6 24 ཝིཙྪཱཙྪལ༤ 39% 1.75 1.30 .85 1.00 0 What are the Sharpe ratio, Treynor ratio, and Jensen's alpha for each portfolio? (A negative value should be Indicated by a minus sign. Leave no cells blank - be certain to enter "0" wherever required. Do not round Intermediate calculations. Round your ratio answers to 5 decimal places. Enter your alpha answers as a percent rounded to 2 decimal places.) Portfolio Sharpe Ratio Treynor Ratio Jensen's Alpha X % Y % Z % Market %
You are given the following information concerning three portfolios, the market portfolio, and the risk-free asset: Portfolio Y Z Market Risk-free Rp 13.5% бр 35.00% 12.5 30.00 7.1 20.00 10.6 4.4 25.00 0 Вр 1.55 1.20 0.80 1.00 0 Assume that the correlation of returns on Portfolio Y to returns on the market is 0.70. What percentage of Portfolio Y's return is driven by the market? Note: Enter your answer as a decimal not a percentage. Round your answer to 4 decimal places. × Answer is complete but not entirely correct. R-squared 0.9785
Consider the following information for four portfolios, the market, and the risk-free rate (RFR): Portfolio Return Beta SD A1 0.15 1.25 0.182 A2 0.1 0.9 0.223 A3 0.12 1.1 0.138 A4 0.08 0.8 0.125 Market 0.11 1 0.2 RFR 0.03 0 0 Refer to Exhibit 18.6. Calculate the Jensen alpha Measure for each portfolio. a. A1 = 0.014, A2 = -0.002, A3 = 0.002, A4 = -0.02 b. A1 = 0.002, A2 = -0.02, A3 = 0.002, A4 = -0.014 c. A1 = 0.02, A2 = -0.002, A3 = 0.002, A4 = -0.014 d. A1 = 0.03, A2 = -0.002, A3 = 0.02, A4 = -0.14 e. A1 = 0.02, A2 = -0.002, A3 = 0.02, A4 = -0.14

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