EBK INVESTMENTS
11th Edition
ISBN: 9781259357480
Author: Bodie
Publisher: MCGRAW HILL BOOK COMPANY
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Chapter 6, Problem 29PS
a.
Summary Introduction
To identify: Proportion of y in passive portfolio.
Introduction: Passive portfolio refers to the creation of portfolio where the investor makes a long term investment in the securities and affected by the short term fluctuation.
b.
Summary Introduction
To calculate: The fee that make the client indifferent between fund and passive strategy.
Introduction: Sharpe ratio measure the extra reward per unit of risk. Investor seeks larger Sharpe ratios to maximize their return for the risk they take.
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Assume that there is a portfolio with an E(r) =20% and σ = 30%. Also, the risk-free rate of return on T-Bills is 7%. If you are a risk-averse investor with degree of risk aversion A=4 would you invest in the risky portfolio or in the risk free asset? And what if your A=2? Assume that there is a portfolio with an E(r) =20% and σ = 30%. Also, the risk-free rate of return on T-Bills is 7%. If you are a risk-averse investor with degree of risk aversion A=4 would you invest in the risky portfolio or in the risk free asset? And what if your A=2?
Give typing answer with explanation and conclusion
Assume that your client would prefer to invest her entire wealth into a portfolio with an annual risk premium of 6% and a standard deviation of 12%. You have constructed a risky portfolio with an expected return of 10% and a standard deviation of 15%. T-Bills are currently yielding 4%. What is the optimal allocation, y, to the risky portfolio given your client's risk preferences? What is the expected return and standard deviation on your client's optimal complete portfolio?
You manage a risky portfolio with an expected rate of return of 17% and a standard deviation of 28%. The T-bill rate is 7%. Your client's
degree of risk aversion is A = 2.0, assuming a utility function u E(r)
=
A0².
a. What proportion, y, of the total investment should be invested in your fund? (Do not round intermediate calculations. Round your
answer to 2 decimal places.)
Investment proportion y
Expected return
Standard deviation
-
%
b. What are the expected value and standard deviation of the rate of return on your client's optimized portfolio? (Do not round
intermediate calculations. Round your answers to 2 decimal places.)
%
%
Chapter 6 Solutions
EBK INVESTMENTS
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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