INVESTMENTS(LL)W/CONNECT
11th Edition
ISBN: 9781260433920
Author: Bodie
Publisher: McGraw-Hill Publishing Co.
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Question
Chapter 6, Problem 25PS
Summary Introduction
To calculate: The risk aversion range depicting a situation where a client wants to borrow and where another client chooses to invest in both index fund and
Introduction:
Money market fund: It is a short-term fund which matures before 12 to 13 months. It is a type of mutual fund that accepts investment only in the form of liquid assets such as cash, cash equivalent securities.
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Assume the risk-free rate is 4%. You are a financial advisor, and must choose one of the funds below
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Expected Return
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Fund A
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Fund B
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Fund C
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Which fund would you recommend without knowing your client's risk preference?
Consider the following risk-return characteristics for funds A and B:
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Fund A (Equity)
12%
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Fund B (Debt)
9%
16%
The correlation coefficient between the returns of fund A and fund B is 0.4.
1. Which Fund is riskier? Write 1 if your answer is Fund A, write 2 if your answer is Fund B, or write
3 if your answer is undetermined.
2.1 What is the weight of fund A in the minimum variance portfolio?
2.4 What is the risk of the minimum variance portfolio?
2.2 What is the weight of Fund B in the minimum variance portfolio?
2.3 What is the expected return of the minimum variance portfolio?
In the following exercise, separate the investments according to the type of Keynesian demand they are: Transactions (0% to 5%), Precautionary (6% to 9%), and Speculative demand (greater than 10%). Investment in each category has the same risk. So you want to invest in the highest return for the same risk. Take each demand type and choose the highest return and put that amount into the investment. For example, if Bond fund A has a return of 4% and Fund B has a return of 5%, they have the same risk, so you would put $70 into bond fund B.
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Chapter 6 Solutions
INVESTMENTS(LL)W/CONNECT
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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