Investments, 11th Edition (exclude Access Card)
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 18PS

a

Summary Introduction

Adequate information:

Expected rate of return of risky asset =18%

Standard deviation of the risky asset=28%

Complete portfolio’s standard deviation will not increase beyond 18%.

T-bill rate is 8%

Client decides to invest in your portfolio in the proportion Y

Overall portfolio’s expected rate of return =16%

To compute: The proportion of Y

Introduction:

Risky Portfolio: When there is a chance of non-accomplishment of financial objectives of an investment in a unit or combination of assets, it is termed as risky portfolio. A higher risk always carries higher return.

b

Summary Introduction

Adequate information:

Expected rate of return of risky asset =18%

Standard deviation of the risky asset=28%

T-bill rate is 8%

Client decides to invest in your portfolio in the proportion Y

Overall portfolio’s expected rate of return =16%

Complete portfolio’s standard deviation will not increase beyond 18%.

To compute: The expected rate of return on the complete portfolio.

Introduction:

Expected return of the portfolio: It is also called as weighted average expected return. So, it is must to consider both the weights and the expected return of both stocks.

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Chapter 8 Risk and Return; Author: Michael Nugent;https://www.youtube.com/watch?v=7n0ciQ54VAI;License: Standard Youtube License