Adequate information: Risk-free Asset E(rp)=11% s p =15% r f =5% Expected rate of return or complete portfolio=8% To compute: The proportion of investment in the risky portfolio (P) along with the proportion of risk-free asset. Introduction: Capital Allocation Line (CAL): It states the prevailing market equilibrium conditions for various portfolios which consist of both risky and risk-free investment. The formula used to calculate CAL is as follows: E ( r c ) = [ r f + y × ( E ( r p − r f ) ) ] Where E(r c )= Expected return of the portfolio r f =Risk free rate y=Proportion invested E(r p )=Expected return of the risky portfolio Risk-aversion: It can be described as the preference of sure return or outcome over an investment which has either equal value or even more high value.

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Answer 1

Question

Chapter 6, Problem 21PS

a

Summary Introduction

Adequate information:

Risk-free Asset E(rp)=11%

s_p=15%

r_f=5%

Expected rate of return or complete portfolio=8%

To compute: The proportion of investment in the risky portfolio (P) along with the proportion of risk-free asset.

Introduction:

Capital Allocation Line (CAL): It states the prevailing market equilibrium conditions for various portfolios which consist of both risky and risk-free investment. The formula used to calculate CAL is as follows:

E(rc)=[rf+y×(E(rp−rf))]

Where

E(r_c)= Expected return of the portfolio

r_f=Risk free rate

y=Proportion invested

E(r_p)=Expected return of the risky portfolio

Risk-aversion: It can be described as the preference of sure return or outcome over an investment which has either equal value or even more high value.

b

Summary Introduction

Adequate information:

Risk-free Asset E(rp)=11%

s_p=15%

r_f=5%

Expected rate of return or complete portfolio=8%

To compute: The standard deviation of the rate of return related to client’s portfolio.

Introduction:

Capital Allocation Line (CAL): It states the prevailing market equilibrium conditions for various portfolios which consist of both risky and risk-free investment. The formula used to calculate CAL is as follows:

E(rc)=[rf+y×(E(rp−rf))]

Where

E(r_c)= Expected return of the portfolio

r_f=Risk free rate

y=Proportion invested

E(r_p)=Expected return of the risky portfolio

Risk-aversion: It can be described as the preference of sure return or outcome over an investment which has either equal value or even more high value.

c

Summary Introduction

Adequate information:

Risk-free Asset E(rp)=11%

s_p=15%

r_f=5%

Expected rate of return or complete portfolio=8%

To compute: The standard deviations of another client with the condition that limit does not cross more than 12% and compare the risk aversion of both the clients.

Introduction:

Capital Allocation Line (CAL): It states the prevailing market equilibrium conditions for various portfolios which consist of both risky and risk-free investment. The formula used to calculate CAL is as follows:

E(rc)=[rf+y×(E(rp−rf))]

Where

E(r_c)= Expected return of the portfolio

r_f=Risk free rate

y=Proportion invested

E(r_p)=Expected return of the risky portfolio

Risk-aversion: It can be described as the preference of sure return or outcome over an investment which has either equal value or even more high value.

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Answer 2

Question

Chapter 6, Problem 21PS

a

Summary Introduction

Adequate information:

Risk-free Asset E(rp)=11%

s_p=15%

r_f=5%

Expected rate of return or complete portfolio=8%

To compute: The proportion of investment in the risky portfolio (P) along with the proportion of risk-free asset.

Introduction:

Capital Allocation Line (CAL): It states the prevailing market equilibrium conditions for various portfolios which consist of both risky and risk-free investment. The formula used to calculate CAL is as follows:

E(rc)=[rf+y×(E(rp−rf))]

Where

E(r_c)= Expected return of the portfolio

r_f=Risk free rate

y=Proportion invested

E(r_p)=Expected return of the risky portfolio

Risk-aversion: It can be described as the preference of sure return or outcome over an investment which has either equal value or even more high value.

b

Summary Introduction

Adequate information:

Risk-free Asset E(rp)=11%

s_p=15%

r_f=5%

Expected rate of return or complete portfolio=8%

To compute: The standard deviation of the rate of return related to client’s portfolio.

Introduction:

Capital Allocation Line (CAL): It states the prevailing market equilibrium conditions for various portfolios which consist of both risky and risk-free investment. The formula used to calculate CAL is as follows:

E(rc)=[rf+y×(E(rp−rf))]

Where

E(r_c)= Expected return of the portfolio

r_f=Risk free rate

y=Proportion invested

E(r_p)=Expected return of the risky portfolio

Risk-aversion: It can be described as the preference of sure return or outcome over an investment which has either equal value or even more high value.

c

Summary Introduction

Adequate information:

Risk-free Asset E(rp)=11%

s_p=15%

r_f=5%

Expected rate of return or complete portfolio=8%

To compute: The standard deviations of another client with the condition that limit does not cross more than 12% and compare the risk aversion of both the clients.

Introduction:

Capital Allocation Line (CAL): It states the prevailing market equilibrium conditions for various portfolios which consist of both risky and risk-free investment. The formula used to calculate CAL is as follows:

E(rc)=[rf+y×(E(rp−rf))]

Where

E(r_c)= Expected return of the portfolio

r_f=Risk free rate

y=Proportion invested

E(r_p)=Expected return of the risky portfolio

Risk-aversion: It can be described as the preference of sure return or outcome over an investment which has either equal value or even more high value.

Expert Solution & Answer

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Answer 3

Question

Chapter 6, Problem 21PS

a

Summary Introduction

Adequate information:

Risk-free Asset E(rp)=11%

s_p=15%

r_f=5%

Expected rate of return or complete portfolio=8%

To compute: The proportion of investment in the risky portfolio (P) along with the proportion of risk-free asset.

Introduction:

Capital Allocation Line (CAL): It states the prevailing market equilibrium conditions for various portfolios which consist of both risky and risk-free investment. The formula used to calculate CAL is as follows:

E(rc)=[rf+y×(E(rp−rf))]

Where

E(r_c)= Expected return of the portfolio

r_f=Risk free rate

y=Proportion invested

E(r_p)=Expected return of the risky portfolio

Risk-aversion: It can be described as the preference of sure return or outcome over an investment which has either equal value or even more high value.

b

Summary Introduction

Adequate information:

Risk-free Asset E(rp)=11%

s_p=15%

r_f=5%

Expected rate of return or complete portfolio=8%

To compute: The standard deviation of the rate of return related to client’s portfolio.

Introduction:

Capital Allocation Line (CAL): It states the prevailing market equilibrium conditions for various portfolios which consist of both risky and risk-free investment. The formula used to calculate CAL is as follows:

E(rc)=[rf+y×(E(rp−rf))]

Where

E(r_c)= Expected return of the portfolio

r_f=Risk free rate

y=Proportion invested

E(r_p)=Expected return of the risky portfolio

Risk-aversion: It can be described as the preference of sure return or outcome over an investment which has either equal value or even more high value.

c

Summary Introduction

Adequate information:

Risk-free Asset E(rp)=11%

s_p=15%

r_f=5%

Expected rate of return or complete portfolio=8%

To compute: The standard deviations of another client with the condition that limit does not cross more than 12% and compare the risk aversion of both the clients.

Introduction:

Capital Allocation Line (CAL): It states the prevailing market equilibrium conditions for various portfolios which consist of both risky and risk-free investment. The formula used to calculate CAL is as follows:

E(rc)=[rf+y×(E(rp−rf))]

Where

E(r_c)= Expected return of the portfolio

r_f=Risk free rate

y=Proportion invested

E(r_p)=Expected return of the risky portfolio

Risk-aversion: It can be described as the preference of sure return or outcome over an investment which has either equal value or even more high value.

Expert Solution & Answer

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Answer 4

Question

Chapter 6, Problem 21PS

a

Summary Introduction

Adequate information:

Risk-free Asset E(rp)=11%

s_p=15%

r_f=5%

Expected rate of return or complete portfolio=8%

To compute: The proportion of investment in the risky portfolio (P) along with the proportion of risk-free asset.

Introduction:

Capital Allocation Line (CAL): It states the prevailing market equilibrium conditions for various portfolios which consist of both risky and risk-free investment. The formula used to calculate CAL is as follows:

E(rc)=[rf+y×(E(rp−rf))]

Where

E(r_c)= Expected return of the portfolio

r_f=Risk free rate

y=Proportion invested

E(r_p)=Expected return of the risky portfolio

Risk-aversion: It can be described as the preference of sure return or outcome over an investment which has either equal value or even more high value.

b

Summary Introduction

Adequate information:

Risk-free Asset E(rp)=11%

s_p=15%

r_f=5%

Expected rate of return or complete portfolio=8%

To compute: The standard deviation of the rate of return related to client’s portfolio.

Introduction:

Capital Allocation Line (CAL): It states the prevailing market equilibrium conditions for various portfolios which consist of both risky and risk-free investment. The formula used to calculate CAL is as follows:

E(rc)=[rf+y×(E(rp−rf))]

Where

E(r_c)= Expected return of the portfolio

r_f=Risk free rate

y=Proportion invested

E(r_p)=Expected return of the risky portfolio

Risk-aversion: It can be described as the preference of sure return or outcome over an investment which has either equal value or even more high value.

c

Summary Introduction

Adequate information:

Risk-free Asset E(rp)=11%

s_p=15%

r_f=5%

Expected rate of return or complete portfolio=8%

To compute: The standard deviations of another client with the condition that limit does not cross more than 12% and compare the risk aversion of both the clients.

Introduction:

Capital Allocation Line (CAL): It states the prevailing market equilibrium conditions for various portfolios which consist of both risky and risk-free investment. The formula used to calculate CAL is as follows:

E(rc)=[rf+y×(E(rp−rf))]

Where

E(r_c)= Expected return of the portfolio

r_f=Risk free rate

y=Proportion invested

E(r_p)=Expected return of the risky portfolio

Risk-aversion: It can be described as the preference of sure return or outcome over an investment which has either equal value or even more high value.

Expert Solution & Answer

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See solution

Answer 5

Chapter 6, Problem 21PS

a

Summary Introduction

Adequate information:

Risk-free Asset E(rp)=11%

s_p=15%

r_f=5%

Expected rate of return or complete portfolio=8%

To compute: The proportion of investment in the risky portfolio (P) along with the proportion of risk-free asset.

Introduction:

Capital Allocation Line (CAL): It states the prevailing market equilibrium conditions for various portfolios which consist of both risky and risk-free investment. The formula used to calculate CAL is as follows:

E(rc)=[rf+y×(E(rp−rf))]

Where

E(r_c)= Expected return of the portfolio

r_f=Risk free rate

y=Proportion invested

E(r_p)=Expected return of the risky portfolio

Risk-aversion: It can be described as the preference of sure return or outcome over an investment which has either equal value or even more high value.

b

Summary Introduction

Adequate information:

Risk-free Asset E(rp)=11%

s_p=15%

r_f=5%

Expected rate of return or complete portfolio=8%

To compute: The standard deviation of the rate of return related to client’s portfolio.

Introduction:

Capital Allocation Line (CAL): It states the prevailing market equilibrium conditions for various portfolios which consist of both risky and risk-free investment. The formula used to calculate CAL is as follows:

E(rc)=[rf+y×(E(rp−rf))]

Where

E(r_c)= Expected return of the portfolio

r_f=Risk free rate

y=Proportion invested

E(r_p)=Expected return of the risky portfolio

Risk-aversion: It can be described as the preference of sure return or outcome over an investment which has either equal value or even more high value.

c

Summary Introduction

Adequate information:

Risk-free Asset E(rp)=11%

s_p=15%

r_f=5%

Expected rate of return or complete portfolio=8%

To compute: The standard deviations of another client with the condition that limit does not cross more than 12% and compare the risk aversion of both the clients.

Introduction:

Capital Allocation Line (CAL): It states the prevailing market equilibrium conditions for various portfolios which consist of both risky and risk-free investment. The formula used to calculate CAL is as follows:

E(rc)=[rf+y×(E(rp−rf))]

Where

E(r_c)= Expected return of the portfolio

r_f=Risk free rate

y=Proportion invested

E(r_p)=Expected return of the risky portfolio

Risk-aversion: It can be described as the preference of sure return or outcome over an investment which has either equal value or even more high value.

Answer 6

Chapter 6, Problem 21PS

a

Summary Introduction

Adequate information:

Risk-free Asset E(rp)=11%

s_p=15%

r_f=5%

Expected rate of return or complete portfolio=8%

To compute: The proportion of investment in the risky portfolio (P) along with the proportion of risk-free asset.

Introduction:

Capital Allocation Line (CAL): It states the prevailing market equilibrium conditions for various portfolios which consist of both risky and risk-free investment. The formula used to calculate CAL is as follows:

E(rc)=[rf+y×(E(rp−rf))]

Where

E(r_c)= Expected return of the portfolio

r_f=Risk free rate

y=Proportion invested

E(r_p)=Expected return of the risky portfolio

Risk-aversion: It can be described as the preference of sure return or outcome over an investment which has either equal value or even more high value.

Answer 7

Chapter 6, Problem 21PS

a

Summary Introduction

Adequate information:

Risk-free Asset E(rp)=11%

s_p=15%

r_f=5%

Expected rate of return or complete portfolio=8%

To compute: The proportion of investment in the risky portfolio (P) along with the proportion of risk-free asset.

Introduction:

Capital Allocation Line (CAL): It states the prevailing market equilibrium conditions for various portfolios which consist of both risky and risk-free investment. The formula used to calculate CAL is as follows:

E(rc)=[rf+y×(E(rp−rf))]

Where

E(r_c)= Expected return of the portfolio

r_f=Risk free rate

y=Proportion invested

E(r_p)=Expected return of the risky portfolio

Risk-aversion: It can be described as the preference of sure return or outcome over an investment which has either equal value or even more high value.

Answer 8

b

Summary Introduction

Adequate information:

Risk-free Asset E(rp)=11%

s_p=15%

r_f=5%

Expected rate of return or complete portfolio=8%

To compute: The standard deviation of the rate of return related to client’s portfolio.

Introduction:

Capital Allocation Line (CAL): It states the prevailing market equilibrium conditions for various portfolios which consist of both risky and risk-free investment. The formula used to calculate CAL is as follows:

E(rc)=[rf+y×(E(rp−rf))]

Where

E(r_c)= Expected return of the portfolio

r_f=Risk free rate

y=Proportion invested

E(r_p)=Expected return of the risky portfolio

Risk-aversion: It can be described as the preference of sure return or outcome over an investment which has either equal value or even more high value.

Answer 9

b

Summary Introduction

Adequate information:

Risk-free Asset E(rp)=11%

s_p=15%

r_f=5%

Expected rate of return or complete portfolio=8%

To compute: The standard deviation of the rate of return related to client’s portfolio.

Introduction:

Capital Allocation Line (CAL): It states the prevailing market equilibrium conditions for various portfolios which consist of both risky and risk-free investment. The formula used to calculate CAL is as follows:

E(rc)=[rf+y×(E(rp−rf))]

Where

E(r_c)= Expected return of the portfolio

r_f=Risk free rate

y=Proportion invested

E(r_p)=Expected return of the risky portfolio

Risk-aversion: It can be described as the preference of sure return or outcome over an investment which has either equal value or even more high value.

Answer 10

c

Summary Introduction

Adequate information:

Risk-free Asset E(rp)=11%

s_p=15%

r_f=5%

Expected rate of return or complete portfolio=8%

To compute: The standard deviations of another client with the condition that limit does not cross more than 12% and compare the risk aversion of both the clients.

Introduction:

Capital Allocation Line (CAL): It states the prevailing market equilibrium conditions for various portfolios which consist of both risky and risk-free investment. The formula used to calculate CAL is as follows:

E(rc)=[rf+y×(E(rp−rf))]

Where

E(r_c)= Expected return of the portfolio

r_f=Risk free rate

y=Proportion invested

E(r_p)=Expected return of the risky portfolio

Risk-aversion: It can be described as the preference of sure return or outcome over an investment which has either equal value or even more high value.

Answer 11

c

Summary Introduction

Adequate information:

Risk-free Asset E(rp)=11%

s_p=15%

r_f=5%

Expected rate of return or complete portfolio=8%

To compute: The standard deviations of another client with the condition that limit does not cross more than 12% and compare the risk aversion of both the clients.

Introduction:

Capital Allocation Line (CAL): It states the prevailing market equilibrium conditions for various portfolios which consist of both risky and risk-free investment. The formula used to calculate CAL is as follows:

E(rc)=[rf+y×(E(rp−rf))]

Where

E(r_c)= Expected return of the portfolio

r_f=Risk free rate

y=Proportion invested

E(r_p)=Expected return of the risky portfolio

Risk-aversion: It can be described as the preference of sure return or outcome over an investment which has either equal value or even more high value.

Answer 12

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Answer 13

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Answer 14

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Answer 15

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 states the prevailing market equilibrium conditions for various portfolios which consist of both risky and risk-free investment.

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