Consider a risky portfolio, A, with an expected rate of return of 0.15 and a standard deviation of 0.15, that lies on a given indifference curve. Which one of the following portfolios might lie on the same indifference curve? A. E(r) = 0.15; Standard deviation = 0.20 B. E(r) = 0.20; Standard deviation = 0.15 C. E(r) = 0.10; Standard deviation = 0.10 D. E(r) = 0.10; Standard deviation = 0.20 E. E(r) = 0.15; Standard deviation = 0.10

Consider a risky portfolio, A, with an expected rate of return of 0.15 and a standard deviation of 0.15, that lies on a given indifference curve. Which one of the following portfolios might lie on the same indifference curve? A. E(r) = 0.15; Standard deviation = 0.20 B. E(r) = 0.20; Standard deviation = 0.15 C. E(r) = 0.10; Standard deviation = 0.10 D. E(r) = 0.10; Standard deviation = 0.20 E. E(r) = 0.15; Standard deviation = 0.10

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter8: Analysis Of Risk And Return

Section: Chapter Questions

Problem 6P

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The following figures show the optimal portfolio choice for two investors with different levels of risk-aversion graphically. Which statement is correct? E[R] 0.3 0.25 0.2 0.15 0.1 0.05 0 0 0.05 0.1 0.15 Figure 1 0.2 0.25 0.3 0.35 o(R) 0.4 0.45 [H]Z 0.3 0.25 0.2 0.15 0.1 0.05 0 0 0.05 0.1 Figure (2) shows an investor that borrows in risk-free rate and invests in the risky asset. Figure (1) shows an investor with a conservative investment behavior. In the optimal point of both figures, the highest indifference curve is tangent to the efficient frontier. In Figure (1), more aggressive investment decision led to a higher Sharpe ratio. 0.15 Figure 2 0.2 0.25 o (R) 0.3 0.35 0.4 0.45
Consider a risky portfolio, A, with an expected rate of return of 0.16 and a standard deviation of 0.25, that lies on a given indifference curve. Which one of the following portfolios is not likely to lie on the same indifference curve for a risk-averse investor with a mean- variance utility function? a. Expected return = 0.20; Standard deviation = 0.15 b. Expected return = 0.10; Standard deviation = 0.20 Expected return= 0.15; Standard deviation = 0.20 Expected return = 0.12; Standard deviation = 0.10 Expected return = 0.10; Standard deviation = 0.10 C. d. e.
An efficient portfolio is one that: Select one: a. maximises return for a given level of risk. b. maximises risk for a given level of return. c. minimises risk for a given rate of return. d. Both A and C. are efficient portfolios.
Consider the following information for four portfolios, the market, and the risk-free rate (RFR): Portfolio Return Beta SD A1 0.15 1.25 0.182 A2 0.1 0.9 0.223 A3 0.12 1.1 0.138 A4 0.08 0.8 0.125 Market 0.11 1 0.2 RFR 0.03 0 0 Refer to Exhibit 18.6. Calculate the Jensen alpha Measure for each portfolio. a. A1 = 0.014, A2 = -0.002, A3 = 0.002, A4 = -0.02 b. A1 = 0.002, A2 = -0.02, A3 = 0.002, A4 = -0.014 c. A1 = 0.02, A2 = -0.002, A3 = 0.002, A4 = -0.014 d. A1 = 0.03, A2 = -0.002, A3 = 0.02, A4 = -0.14 e. A1 = 0.02, A2 = -0.002, A3 = 0.02, A4 = -0.14
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.
The following figures show the optimal portfolio choice for two investors with different levels of risk-aversion graphically. Which statement is correct? E[R] 0.3 0.25 0.2 0.15 0.1 0.05 0 0 0.05 0.1 0.15 Figure 1 0.2 0.25 0.3 0.35 0.4 0.45 o (R) E[R] Figure (1) shows an investor with a conservative investment behavior. 0.3 0.25 0.2 0.15 0.1 0.05 0 0 Figure (2) shows an investor that borrows in risk-free rate and invests in the risky asset. 0.05 0.1 0.15 In the optimal point of both figures, the highest indifference curve is tangent to the efficient frontier. O In Figure (1), more aggressive investment decision led to a higher Sharpe ratio. Figure 2 0.2 0.25 o(R) 0.3 0.35 0.4 0.45
If the market portfolio has a required return of 0.12 and a standard deviation of 0.40, and the riskfreerate is 0.04, what is the slope of the security market line?
We consider a market with N risky assets. The following table shows the information of some portfolios constructed by these risky assets. Expected return Portfolio 1 (W₁) Portfolio 2 (W₂) Portfolio 3 (W3) Portfolio 4 (W4) 0.0321 0.0607 0.1263 0.1322 Portfolio 1 Portfolio 2 Portfolio 3 Portfolio 4 Standard deviation of the return The correlation coefficient of returns of these portfolios are given in the following table: Portfolio 1 Portfolio 2 Portfolio 3 Portfolio 4 0.731672 1 0.731672 1 0.62553 0.002018 -0.02533 0.662908 0.093207 0.088882 0.217899 0.212048 0.002018 0.62553 1 0.915149 You are also given that two of these portfolios are efficient. -0.02533 0.662908 0.915149 1 Question (a) Using the above information, determine the global minimum variance portfolio. Express your answer in terms of W₁, W2, W3 and W₁.
Which 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.
Use the following table to answer the questions a-c below. Standard deviation of risky | return Risky Expected return on risky portfolio Risk-free Sharpe-ratio Portfolio portfolio 1 12 3.5 4.5 2 13 3.75 4.5 3 14 4 4.5 4 15 4.25 4.5 a. Calculate the Sharpe ratio for each portfolio b. Identify the optimal portfolio from the above 4
Assume the APT equation for portfolios A and B with the following system of equations: E[rA] = λ0 + (λ1)3 + (λ2)0.2 = 11.0 E[rB] = λ0 + (λ1)2 + (λ2)1 = 13.0 Assume the following: . The risk free rate is λ0 = Rf = 5 . The expected return on the market portfolio is RM = 10 . Expected returns are consistent with the CAPM. . (hint: note that λ1 = E[RA] − Rf and λ2 = E[RB] − Rf ). Answer the following: (a) What are λ1 and λ2? (b) What is the CAPM β associated with the pure portfolio associated with factor 1? (c) What is the CAPM β associated with the pure portfolio associated with factor 2?
Which of the following statements regarding the graph of the SML is most accurate? Select one O A. O B. B-1.0 The beta of Portfolios A, B, and C are identical as they fall directly on the line. The expected return of Portfolio C is the difference between the market's expected return and the risk-free rate. O C. Portfolio A has lower systematic risk than Portfolio B. OD. The slope of the line is the market risk premium.