Adequate information: Expected rate of return of risky asset =18% Standard deviation of the risky asset=28% T-bill rate is 8% Client’s degree of risk aversion A=3.5 To compute: The proportion of Y of the total investment Introduction: Portfolio optimization: When an investor has to select the best portfolio or asset distribution from the given set of portfolios, he/she has to very careful as his purpose or objective of investing should be fulfilled. So, the process involving this activity can be termed as Portfolio optimization. By proper planning and calculations, the risk factor can be decreased and thereby increasing the returns.

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Answer 1

Question

Chapter 6, Problem 19PS

a

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’s degree of risk aversion A=3.5

To compute: The proportion of Y of the total investment

Introduction:

Portfolio optimization: When an investor has to select the best portfolio or asset distribution from the given set of portfolios, he/she has to very careful as his purpose or objective of investing should be fulfilled. So, the process involving this activity can be termed as Portfolio optimization. By proper planning and calculations, the risk factor can be decreased and thereby increasing the returns.

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’s degree of risk aversion A=3.5

To compute: The expected rate of return and the standard deviation of the enhanced portfolio related to client.

Introduction:

Portfolio optimization: When an investor has to select the best portfolio or asset distribution from the given set of portfolios, he/she has to very careful as his purpose or objective of investing should be fulfilled. So, the process involving this activity can be termed as Portfolio optimization. By proper planning and calculations, the risk factor can be decreased and thereby increasing the returns.

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You manage a risky portfolio with an expected rate of return of 22% and a standard deviation of 34%. The T-bill rate is 6%. Your client's degree of risk aversion is A = 1.7. Required: a. What proportion, y, of the total investment should be invested in your fund? b. What are the expected value and standard deviation of the rate of return on your client's optimized portfolio? Complete this question by entering your answers in the tabs below. Required A Required B What proportion, y, of the total investment should be invested in your fund? Note: Round your answer to 2 decimal places. Investment proportion y %

You manage a risky portfolio with an expected rate of return of 18% and a standard deviation of 28%. The T-bill rate is 8%. Your client’s degree of risk aversion is A = 3.5.a. What proportion, y, of the total investment should be invested in your fund?b. What is the expected value and standard deviation of the rate of return on your client’s optimized portfolio?

Consider the following information about a risky portfolio that you manage and a risk-free asset: E(rp) = 9%, Op = 24%, rf = 2%. Required: a. Your client wants to invest a proportion of her total investment budget in your risky fund to provide an expected rate of return on her overall or complete portfolio equal to 8%. What proportion should she invest in the risky portfolio, P, and what proportion in the risk-free asset? b. What will be the standard deviation of the rate of return on her portfolio? c. Another client wants the highest return possible subject to the constraint that you limit his standard deviation to be no more than 12%. Which client is more risk averse?

Answer 2

Question

Chapter 6, Problem 19PS

a

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’s degree of risk aversion A=3.5

To compute: The proportion of Y of the total investment

Introduction:

Portfolio optimization: When an investor has to select the best portfolio or asset distribution from the given set of portfolios, he/she has to very careful as his purpose or objective of investing should be fulfilled. So, the process involving this activity can be termed as Portfolio optimization. By proper planning and calculations, the risk factor can be decreased and thereby increasing the returns.

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’s degree of risk aversion A=3.5

To compute: The expected rate of return and the standard deviation of the enhanced portfolio related to client.

Introduction:

Portfolio optimization: When an investor has to select the best portfolio or asset distribution from the given set of portfolios, he/she has to very careful as his purpose or objective of investing should be fulfilled. So, the process involving this activity can be termed as Portfolio optimization. By proper planning and calculations, the risk factor can be decreased and thereby increasing the returns.

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Answer 3

Question

Chapter 6, Problem 19PS

a

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’s degree of risk aversion A=3.5

To compute: The proportion of Y of the total investment

Introduction:

Portfolio optimization: When an investor has to select the best portfolio or asset distribution from the given set of portfolios, he/she has to very careful as his purpose or objective of investing should be fulfilled. So, the process involving this activity can be termed as Portfolio optimization. By proper planning and calculations, the risk factor can be decreased and thereby increasing the returns.

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’s degree of risk aversion A=3.5

To compute: The expected rate of return and the standard deviation of the enhanced portfolio related to client.

Introduction:

Portfolio optimization: When an investor has to select the best portfolio or asset distribution from the given set of portfolios, he/she has to very careful as his purpose or objective of investing should be fulfilled. So, the process involving this activity can be termed as Portfolio optimization. By proper planning and calculations, the risk factor can be decreased and thereby increasing the returns.

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Answer 4

Question

Chapter 6, Problem 19PS

a

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’s degree of risk aversion A=3.5

To compute: The proportion of Y of the total investment

Introduction:

Portfolio optimization: When an investor has to select the best portfolio or asset distribution from the given set of portfolios, he/she has to very careful as his purpose or objective of investing should be fulfilled. So, the process involving this activity can be termed as Portfolio optimization. By proper planning and calculations, the risk factor can be decreased and thereby increasing the returns.

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’s degree of risk aversion A=3.5

To compute: The expected rate of return and the standard deviation of the enhanced portfolio related to client.

Introduction:

Portfolio optimization: When an investor has to select the best portfolio or asset distribution from the given set of portfolios, he/she has to very careful as his purpose or objective of investing should be fulfilled. So, the process involving this activity can be termed as Portfolio optimization. By proper planning and calculations, the risk factor can be decreased and thereby increasing the returns.

Expert Solution & Answer

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Answer 5

Chapter 6, Problem 19PS

a

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’s degree of risk aversion A=3.5

To compute: The proportion of Y of the total investment

Introduction:

Portfolio optimization: When an investor has to select the best portfolio or asset distribution from the given set of portfolios, he/she has to very careful as his purpose or objective of investing should be fulfilled. So, the process involving this activity can be termed as Portfolio optimization. By proper planning and calculations, the risk factor can be decreased and thereby increasing the returns.

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’s degree of risk aversion A=3.5

To compute: The expected rate of return and the standard deviation of the enhanced portfolio related to client.

Introduction:

Portfolio optimization: When an investor has to select the best portfolio or asset distribution from the given set of portfolios, he/she has to very careful as his purpose or objective of investing should be fulfilled. So, the process involving this activity can be termed as Portfolio optimization. By proper planning and calculations, the risk factor can be decreased and thereby increasing the returns.

Answer 6

Chapter 6, Problem 19PS

a

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’s degree of risk aversion A=3.5

To compute: The proportion of Y of the total investment

Introduction:

Portfolio optimization: When an investor has to select the best portfolio or asset distribution from the given set of portfolios, he/she has to very careful as his purpose or objective of investing should be fulfilled. So, the process involving this activity can be termed as Portfolio optimization. By proper planning and calculations, the risk factor can be decreased and thereby increasing the returns.

Answer 7

Chapter 6, Problem 19PS

a

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’s degree of risk aversion A=3.5

To compute: The proportion of Y of the total investment

Introduction:

Portfolio optimization: When an investor has to select the best portfolio or asset distribution from the given set of portfolios, he/she has to very careful as his purpose or objective of investing should be fulfilled. So, the process involving this activity can be termed as Portfolio optimization. By proper planning and calculations, the risk factor can be decreased and thereby increasing the returns.

Answer 8

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’s degree of risk aversion A=3.5

To compute: The expected rate of return and the standard deviation of the enhanced portfolio related to client.

Introduction:

Portfolio optimization: When an investor has to select the best portfolio or asset distribution from the given set of portfolios, he/she has to very careful as his purpose or objective of investing should be fulfilled. So, the process involving this activity can be termed as Portfolio optimization. By proper planning and calculations, the risk factor can be decreased and thereby increasing the returns.

Answer 9

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’s degree of risk aversion A=3.5

To compute: The expected rate of return and the standard deviation of the enhanced portfolio related to client.

Introduction:

Portfolio optimization: When an investor has to select the best portfolio or asset distribution from the given set of portfolios, he/she has to very careful as his purpose or objective of investing should be fulfilled. So, the process involving this activity can be termed as Portfolio optimization. By proper planning and calculations, the risk factor can be decreased and thereby increasing the returns.

Answer 10

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Answer 13

Ch. 6.A - Prob. 1P Ch. 6.A - Prob. 2P Ch. 6 - Prob. 1PS Ch. 6 - Prob. 2PS Ch. 6 - Prob. 3PS Ch. 6 - Prob. 4PS Ch. 6 - Prob. 5PS Ch. 6 - Prob. 6PS Ch. 6 - Prob. 7PS Ch. 6 - Prob. 8PS

Solution Summary: The author explains the process of Portfolio optimization, which involves selecting the best portfolio or asset distribution from the given set of portfolios.

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