You invest $100 in a risky asset with an expected rate of return of 15% and a standard deviation of 15% and a T-bill with a rate of return of 5% and E (U)- E(r) -0.5Aa'. Suppose your risk aversion factor is 5. What weight would you assign to the risk-free asset? A) 0.8889. B) 0.1111. c) 0.2457. D) 0.2111. . Which of the following statements is true regarding the optimal risky portfolio: A) It is designated by the point of tangency with iso-utility curve and the capital allocation line. B) It is designated by the point of highest Sharpe ratio in the opportunity set. C) It is designed by the point of tangency with the opportunity set and the securities market line. D) This portfolio gives the highest standard deviation risk per unit of risk premium in the opportunity set.
You invest $100 in a risky asset with an expected rate of return of 15% and a standard deviation of 15% and a T-bill with a rate of return of 5% and E (U)- E(r) -0.5Aa'. Suppose your risk aversion factor is 5. What weight would you assign to the risk-free asset? A) 0.8889. B) 0.1111. c) 0.2457. D) 0.2111. . Which of the following statements is true regarding the optimal risky portfolio: A) It is designated by the point of tangency with iso-utility curve and the capital allocation line. B) It is designated by the point of highest Sharpe ratio in the opportunity set. C) It is designed by the point of tangency with the opportunity set and the securities market line. D) This portfolio gives the highest standard deviation risk per unit of risk premium in the opportunity set.
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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Transcribed Image Text:You invest $100 in a risky asset with an expected rate of return of 15% and a standard deviation of
15% and a T-bill with a rate of return of 5% and E (U)= E(r) - 0.5Ao. Suppose your risk aversion
factor is 5. What weight would you assign to the risk-free asset?
A) 0.8889.
B) 0.1111.
C) 0.2457.
D) 0.2111.
. Which of the following statements is true regarding the optimal risky portfolio:
A) It is designated by the point of tangency with iso-utility curve and the capital allocation line.
B) It is designated by the point of highest Sharpe ratio in the opportunity set.
C) It is designed by the point of tangency with the opportunity set and the securities market line.
D) This portfolio gives the highest standard deviation risk per unit of risk premium in the
opportunity set.
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