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 B .6542 5390 Risk Premium .6390 0.0800 Given the risk aversion of 3.0, how much will she invest in the risky assets of the portfolio? Y* Expected Return on Portfolio/ (A*Variance of Portfolio) 0.1200 0.6200 3.00 STDEV 0.2000 0.3500
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 B .6542 5390 Risk Premium .6390 0.0800 Given the risk aversion of 3.0, how much will she invest in the risky assets of the portfolio? Y* Expected Return on Portfolio/ (A*Variance of Portfolio) 0.1200 0.6200 3.00 STDEV 0.2000 0.3500
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:Your client has a risk aversion of A3 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
B
6542
5390
Risk Premium
.6390
0.0800
Given the risk aversion of 3.0, how much will she invest in the risky
assets of the portfolio?
Y*= Expected Return on Portfolio / (A*Variance of Portfolio)
0.1200
0.6200
3.00
STDEV
0.2000
0.3500
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