Which of the following portfolios of two assets would be preferred by a risk averse investor OA. Outcome I, Pr-0.50: When asset A increases in value, asset B does not change in value Outcome II, Pr-0.50:When asset A does not change in value, asset B decreases in value OB. Outcome 1, Pr-0.50: When asset A increases by $10; asset B decreases, on average, by $5. Outcome II, Pr-0.50: When asset A decreases by $8, asset B increases, on average, by $9. OC. Outcome 1, Pr-0.50: When asset A increases by $10, asset B decreases by $10 Outcome II, Pr-0.50: When asset A decreases by $5, asset B increases by $5. OD. Outcome 1, Pr-0.50: When asset A increases in value, asset B increases by the same amount. Outcome II, Pr-0.50:When asset A decreases in value, asset B decreases by the same amount

Which of the following portfolios of two assets would be preferred by a risk averse investor OA. Outcome I, Pr-0.50: When asset A increases in value, asset B does not change in value Outcome II, Pr-0.50:When asset A does not change in value, asset B decreases in value OB. Outcome 1, Pr-0.50: When asset A increases by $10; asset B decreases, on average, by $5. Outcome II, Pr-0.50: When asset A decreases by $8, asset B increases, on average, by $9. OC. Outcome 1, Pr-0.50: When asset A increases by $10, asset B decreases by $10 Outcome II, Pr-0.50: When asset A decreases by $5, asset B increases by $5. OD. Outcome 1, Pr-0.50: When asset A increases in value, asset B increases by the same amount. Outcome II, Pr-0.50:When asset A decreases in value, asset B decreases by the same amount

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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What is the expected return of a portfolio of two risky assets if the expected return E(Ri), standard deviation (SDi), covariance (COVij), and asset weight (Wi) are as shown below? Asset (A) E(R₂) = 10% SDA = 8% WA = 0.25 COVAB = 0.006 Select one: A. 13.75% B. 7.72% C. 12.5% D. 8.79% Asset (B) E(RB) = 15% SDB = 9.5% WB = 0.75
What is the expected return of a portfolio of two risky assets if the expected return E(Ri), standard deviation (SDi), covariance (COVij), and asset weight (Wi) are as shown below? Asset (A) E(R₂) = 25% SDA = 18% WA = 0.75 COVA, B = -0.0009 Select one: A. 13.65% B. 20 U ODN 20.0% C. 18.64% D. 22.5% Asset (B) E(R₂) = 15% SDB = 11% WB = 0.25
What is the expected return of a portfolio of two risky assets if the expected return E(Ri), standard deviation (SDi), covariance (COVij), and asset weight (Wi) are as shown below? Asset (A) E(RA) = 25% SDA = 18% WA = 0.75 COVAB= -0.0009 Asset (B) E(R₂) = 15% SDB = 11% W₁ = 0.25
b. Suppose that you have the following information of three risky assets. Security Return (%) Standard Covariance with Deviation (%) A B A 11 10 4 14 6. 30 17 Risk free rate = 6%, (assume that A = 6). Requirement: Find the optimal portfolio weight of risky assets. How do you allocate the capital between optimal portfolio of risky asset and risk-free assets.
The 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 averse
At a minimum, which of the following would you need to know to estimate the amount of additional reward you will receive for purchasing a risky asset instead of a risk-free asset? 1. I. Asset's standard deviation 2. II. Asset's beta 3. III. Risk-free rate of return 4. IV. Market risk premium I, III, and IV only I, II, III, and IV I and III only II and IV only III and IV only ооо O
Return on a portfolio of two risky assets which are perfectly negatively correlated is equivalent to a. Risk-free rate b. Return on market portfolio c. Zero return d. -1%
Supposing the return from an investment has the following probability distribution Return Probability R (%) 8 0.2 10 0.2 12 0.5 14 0.1 Required: What is the expected return of the investment? What is the risk as measured by the standard deviation of expected returns?
An investor has a portfolio of two assets A and B. The details are shown in the below table. Portfolio Details Asset Expectedreturn Standarddeviation Covariance (A, B) Expected Portfolio Return A 0.06 0.5 0.12 0.1 B 0.08 0.8 Which one of the following statements is NOT correct? a. The portfolio weight in asset A is -100%. b. The correlation of asset A and B’s returns is 0.3. c. The investor can benefit from a fall in the price of asset A. d. The variance of the portfolio is 2.33. e. The order of short selling is borrowing, buying, selling, and returning.
The expected return of a portfolio that is totally invested in the risk free asset is caclculated as: E(R) = WA * E(RA) Wf * E(RB) = 0 * 0.16 1.0 * 0.08 = 0 0.08 = 0.08 or 8% Therefore the expected return of a portfolio with risk free asset is 8% There is no standard deviation for the risk free asset. Please full Explain
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.
a) Consider two assets with the following characteristics: Expected return of asset 1 = 0.15, Standard deviation of asset 1 = 0.10, portion in asset 1 = 0.5 Expected return of asset 2 = 0.20, Standard deviation of asset 2 = 0.20, Compute the expected return and standard deviation of portfolio if correlation coefficient (r1,2) = 0.40 and (r1,2)= -0.60 b) Why do most investors hold diversified portfolio?

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