Investments, 11th Edition (exclude Access Card)
11th Edition
ISBN: 9781260201543
Author: Zvi Bodie Professor; Alex Kane; Alan J. Marcus Professor
Publisher: McGraw-Hill Education
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Chapter 6, Problem 11PS
Summary Introduction
Introduction: Portfolio consists of assets which have different rates as well as different risk associated with the assets, a risk free asset and asset that contains risk, both have a certain percentage of return.
To calculate: the utility levels of each portfolio for an investor with A=2.
Utility of portfolio can be calculated by the formula provided below:
Calculating utility for each investment taking A=2
| Return of portfolio (Return Weight of bills | Standard deviation of portfolio (Standard deviation weight of bills) | Variance of Portfolio | Weight of bills | Weight of Index | U(A=2) |
| 0.130 | 0.20 | 0.0400 | 0.0 | 1.0 | |
| 0.114 | 0.16 | 0.0256 | 0.2 | 0.8 | |
| 0.098 | 0.12 | 0.0144 | 0.4 | 0.6 | |
| 0.082 | 0.08 | 0.0064 | 0.6 | 0.4 | |
| 0.066 | 0.04 | 0.0016 | 0.8 | 0.2 | |
| 0.050 | 0.00 | 0.0000 | 1.0 | 0.0 |
Expert Solution & Answer
Explanation of Solution
Utility of portfolio can be calculated by the formula provided below:
Calculating utility for each investment taking A=2
| Return of portfolio (Return Weight of bills | Standard deviation of portfolio (Standard deviation weight of bills) | Variance of Portfolio | Weight of bills | Weight of Index | U(A=2) |
| 0.130 | 0.20 | 0.0400 | 0.0 | 1.0 | |
| 0.114 | 0.16 | 0.0256 | 0.2 | 0.8 | |
| 0.098 | 0.12 | 0.0144 | 0.4 | 0.6 | |
| 0.082 | 0.08 | 0.0064 | 0.6 | 0.4 | |
| 0.066 | 0.04 | 0.0016 | 0.8 | 0.2 | |
| 0.050 | 0.00 | 0.0000 | 1.0 | 0.0 |
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Chapter 6 Solutions
Investments, 11th Edition (exclude Access Card)
Ch. 6.A - Prob. 1PCh. 6.A - Prob. 2PCh. 6 - Prob. 1PSCh. 6 - Prob. 2PSCh. 6 - Prob. 3PSCh. 6 - Prob. 4PSCh. 6 - Prob. 5PSCh. 6 - Prob. 6PSCh. 6 - Prob. 7PSCh. 6 - Prob. 8PS
Ch. 6 - Prob. 9PSCh. 6 - Prob. 10PSCh. 6 - Prob. 11PSCh. 6 - Prob. 12PSCh. 6 - Prob. 13PSCh. 6 - Prob. 14PSCh. 6 - Prob. 15PSCh. 6 - Prob. 16PSCh. 6 - Prob. 17PSCh. 6 - Prob. 18PSCh. 6 - Prob. 19PSCh. 6 - Prob. 20PSCh. 6 - Prob. 21PSCh. 6 - Prob. 22PSCh. 6 - Prob. 23PSCh. 6 - Prob. 24PSCh. 6 - Prob. 25PSCh. 6 - Prob. 26PSCh. 6 - Prob. 27PSCh. 6 - Prob. 28PSCh. 6 - Prob. 29PSCh. 6 - Prob. 1CPCh. 6 - Prob. 2CPCh. 6 - Prob. 3CPCh. 6 - Prob. 4CPCh. 6 - Prob. 5CPCh. 6 - Prob. 6CPCh. 6 - Prob. 7CPCh. 6 - Prob. 8CPCh. 6 - Prob. 9CP
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