EBK INVESTMENTS
11th Edition
ISBN: 9781259357480
Author: Bodie
Publisher: MCGRAW HILL BOOK COMPANY
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Chapter 9, Problem 9CP
Summary Introduction
To determine: The portfolio R lies on the capital market line
Introduction: The
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Consider the following performance data for a portfolio manager:
Benchmark
Portfolio
Index
Portfolio
Weight
Weight
Return
Return
Stocks
0.65
0.7
0.11
0.12
Bonds
0.3
0.25
0.07
0.08
Cash
0.05
0.05
0.03
0.025
a.Calculate the percentage return that can be attributed to the asset allocation decision.
b.Calculate the percentage return that can be attributed to the security selection decision.
The Capital Market Line (CML) expresses the risk-return trade-off for a portfolio as follows:
E(Rport )=RFR+Oport [(E(Rm)-RFR)/om ]
Required:
Extend this expression to allow for the evaluation of any individual risky Asset i. Explain the steps in details.
It is a risk adjusted performance measure that represents the average return on a portfolio.
a. sharpe ratio
b. Treynor index
Chapter 9 Solutions
EBK INVESTMENTS
Ch. 9 - Prob. 1PSCh. 9 - Prob. 2PSCh. 9 - Prob. 3PSCh. 9 - Prob. 4PSCh. 9 - Prob. 5PSCh. 9 - Prob. 6PSCh. 9 - Prob. 7PSCh. 9 - Prob. 8PSCh. 9 - Prob. 9PSCh. 9 - Prob. 10PS
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- Portfolios on the Capital Market Line (CML) have different levels of ____? Idiosyncratic risk Total risk Sharpe Ratio Risk-free rate None of the abovearrow_forwardQuestion 1 Fill the parts in the above table that are shaded in yellow. You will notice that there are nineline items. Question 2Using the data generated in the previous question (Question 1);a) Plot the Security Market Line (SML) b) Superimpose the CAPM’s required return on the SML c) Indicate which investments will plot on, above and below the SML? d) If an investment’s expected return (mean return) does not plot on the SML, what doesit show? Identify undervalued/overvalued investments from the grapharrow_forwardWhich of the following statements regarding the graph of the SML is most accurate? A Select one OA. The beta of Portfolios A, B, and C are identical as they fall directly on the line. B. The expected return of Portfolio C is the difference between the market's expected return and the risk-free rate. C. Portfolio A has lower systematic risk than Portfolio B. D. The slope of the line is the market risk premium.arrow_forward
- Considering the attached set of securities and portfolio returns: Find the combination of the weights that minimizes CV of the portfolio. How does the CV of the optimal portfolio compare with the CVs of its constituents?arrow_forwardStandard deviation of portfolio returns is a measure of ___________. Group of answer choices total risk systematic risk market risk firm-specific risk unsystematic riskarrow_forwardWhich of the following measures reflects the excess return earned on a portfolio per unit of its systematic risk a. Treynor’s measure b. Sharpe’s measure c. Jensen’s measure d. Total measurearrow_forward
- Which of the following statements regarding non-systematic risk, systematic risk and total risk is/are true? Select one or more:a. As the number of assets within a portfolio increases, the total risk of a portfolio will go to zero.b. A riskfree asset must have zero non-systematic risk.c. A well diversified portfolio must have zero systematic riskd. Under the Capital Asset Pricing Model (CAPM).an asset with zero systematic risk must have expected return equal to the riskfree rate.arrow_forwardValue-at-risk (VaR) can be defined as: Group of answer choices A. The highest value of a portfolio that might be expected. B. The worst loss of a portfolio that might be expected. C. The average value of a portfolio that might be expected. D. Must be calculated within a single day for regulatory capital reporting.arrow_forwardThe security market line depicts: a. Expected return as a function of systematic risk (indicated by beta) b. The market portfolio as the optimal portfolio of risky assets c. The relationship between a security’s return and the return on the index d. Portfolio combinations of the market portfolio and the risk-free asset e. Expected return as a function of volatilityarrow_forward
- Question No. 1: Explain the following Financial Terminology and then determined the relationship between its. portfolio efficient Beta Coefficient frontier efficient Diversification Diversifiable Risk Systematic Riskarrow_forwardThe optimal proportion of the risky asset in the complete portfolio is given by the equation below y*= E(Rp− Rf) A0² For each of the variables on the right side of the equation, discuss the impact of the variable's effect on y* and why the nature of the relationship makes sense intuitively. Assume the investor is risk aversearrow_forwardThe return, standard deviation, market risk premium and Beta (β) of A, B, C, D and the Market Portfolio and the risk-free interest rate are given in the table below. Find the performance of portfolios (excluding Sortino). portfolio return (rp) risk free interest rate (rf) std. deviation Beta market risk premium (rp- rf) A 18,00 11,00 6,00 1,24 7,00 B 12,00 11,00 2,00 0,87 1,00 C 9,00 11,00 0,50 - 0,73 - 2,00 D 15,00 11,00 3,00 0,46 4,00 Market 13,00 11,00 1,50 1 2,00arrow_forward
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