Plz help plzzz urgent hand written plzxzzz..solve 20-25 mins plzz 5. Suppose A is the market portfolio with expected return m = 5% and standard deviation of returnOm = 1 and B is an efficient portfolio with expected return µg = 7% and standard deviation ofreturn og 1.5.(a) Determine the return of riskless asset.(b) If there exists another portfolio C with Bc = 2, what condition is needed in order to obtain itsstandard deviation oc using capital market line? Compute oc assuming the necessarycondition holds.

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5. Suppose A is the market portfolio with expected return m = 5% and standard deviation of return m = 1 and B is an efficient portfolio with expected return B = 7% and standard deviation of return σB = 1.5. (a) Determine the return of riskless asset. (b) If there exists another portfolio C with Bc = 2, what condition is needed in order to obtain its standard deviation oc using capital market line? Compute oc assuming the necessary

5. Suppose A is the market portfolio with expected return m = 5% and standard deviation of return m = 1 and B is an efficient portfolio with expected return B = 7% and standard deviation of return σB = 1.5. (a) Determine the return of riskless asset. (b) If there exists another portfolio C with Bc = 2, what condition is needed in order to obtain its standard deviation oc using capital market line? Compute oc assuming the necessary

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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2. Suppose that you have a riskfree asset and N risky assets for investment. The rate of return on the riskfree asset is r,, while the (Nx1) vector of the rate of return on the N risky assets is r, which is multivariate normal, i.e., r N(u, E). Your utility function for a portfolio that consists of the riskfree asset and the N risky asset is u(r,)=r,-=o, 2 Suppose that the sum of investment proportions on the riskfree and risky assets is one. Answer the following question. A. What is your optimal investment proportion in the risky assets? How is your investment on the riskfree asset affected by different values of 2? B. Suppose that there is only one risky asset i. Show the effects of the Sharpe ratio (4,/0, ) on the investment proportion in the risky asset.
According to CAPM, the expected rate of return of a portfolio with a beta of 1.0 and an alpha of 0 is:a. Between rM and rf .b. The risk-free rate, rf .c. β(rM − rf).d. The expected return on the market, rM.
We believe that the single factor model can predict any individual asset’s realized rate of return well. Both Portfolio A and Portfolio B are well-diversified: ri = E(ri) + βiF + Ei, where E(ei) = 0 and Cov(F, i) = 0 A B β 1.2 0.8 E(r) 0.1 0.08 (1) What is the rate of return of the risk-free asset? (2) What is the expected rate of return of the well-diversified portfolio C with βC = 1.6, which also exists in the market? (3) A fund constructs a well-diversified portfolio D. Studies show that βD = 0.6. The expected rate of return of D is 0.06. Is there an arbitrage opportunity? If so, construct a trading strategy to earn profits with no risk. If not, why?
The CAPM states that the expected (required) return on an asset is : E(Ri)=Rf+βi[E(RM)−Rf] where the term in square brackets is the risk-premium earned by the market portfolio. Therefore, the beta of the market portfolio (βM) must be equal to __________ . A) zero B) 0.5 C) 1.0 D) an unknown estimate
Consider the expected return and standard deviation of the following two assets: Asset 1: E[r1]=0.1 and σ1=0.2 Asset 2: E[r2]=0.3 and σ2=0.4 (a) Draw (e.g. with Excel) the set of achievable portfolios in mean-standard deviation space for the cases: (i) ρ12= -1, (ii) ρ12=0. (b) Suppose ρ12=-1. Which portfolio has the minimal variance? What is the variance and expected return of that portfolio? (c) Derive the formula for the variance of a portfolio with four assets.
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?
There are two assets 1 and 2, with returns X and Y correspondingly. Return X is a random variable with mean 1 and variance 1; return Y is a random variable with mean 1 and variance 3. We know that the expectation of X*Y is equal to 0. Find the share of asset 1 in the risk-minimizing portfolio.
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
choose which one ? 3.Assume CAPM holds. What is the correlation between an efficient portfolio and the market portfolio?a.1b.-1c.0d.Not enough information
f. Assume a Portfolio of two assets A and B whose standard deviations of their returns are 8.6% and 10.8% respectively, while their correlation coefficient of returns is Pas = - 0.61. You are given the right to do portfolio optimization without restrictions. What proportions would you choose and why?
5. There are three risky assets with rates of return r₁, 12, and r3, respectively. The covariance matrix and the expected rates of return are [0.4 0.2 0 = Σ 0.2 0.4 0.2 0 0.2 0.4 [0.04] 0.08 0.06 (a) Find the global minimum-variance portfolio. (b) For the required return z = 0.075, find (the weight of) the optimal portfolio with risky assets. For (c) and (d) only, assume there is an additional risk-free asset with return Tf 0.03. = (c) Find the tangent portfolio.
Assume that using the Security Market Line(SML) the required rate of return(RA)on stock A is found to be halfof the required return (RB) on stock B. The risk-free rate (Rf) is one-fourthof the required return on A. Return on market portfolio is denoted by RM. Find the ratioof betaof A(A) tobeta of B(B). Thank you for your help.

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