Your client has a risk aversion of A = 3 when applied to return on wealth over a 1 year horizon. She is looking at two portfolios: The S&P 500 with a Risk Premium of 8% and a standard Deviation of 20%.
Your client has a risk aversion of A = 3 when applied to return on wealth over a 1 year horizon. She is looking at two portfolios: The S&P 500 with a Risk Premium of 8% and a standard Deviation of 20%.
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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There are 3 answer choices here, falling between the range of 53-66%. If you give me any answer outside of this range it will be downvoted and reported! Make sure to include 2 decimal places in your answer!
Transcribed Image Text:Your client has a risk aversion of A = 3 when applied to return on wealth
over a 1 year horizon.
She is looking at two portfolios:
The S&P 500 with a Risk Premium of 8% and a standard Deviation of 20%.
A Hedge Fund with a Risk Premium of 12% and a standard Deviation of 35%
There is an annual correlation of .6200
Use this data for problems #12 - #16
Fund
S&P 500
Hedge
Correlation
Risk Aversion A
Risk Premium
assets of the portfolio?
0.0800
0.1200
0.6200
3.00
Given the risk aversion of 3.0, how much will she invest in the risky
Y* = Expected Return on Portfolio / (A*Variance of Portfolio)
STDEV
0.2000
0.3500
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