Consider historical data showing that the average annual rate of return on the S&P 500 portfolio over the past 90 years has averaged roughly 8% more than the Treasury bill return and that the S&P 500 standard deviation has been about 20% per year. Assume these values are representative of investors' expectations for future performance and that the current T-bill rate is 5%. Calculate the utility levels of each portfolio for an investor with A = 3. Assume the utility function is u = E(r) - 0.5 × round intermediate calculations. Round your answers to 4 decimal places.) WBills 0.0 0.2 0.4 0.6 0.8 1.0 Windex 1.0 0.8 0.6 0.4 0.2 0.0 U(A = 3) Ao². (Do not

Consider historical data showing that the average annual rate of return on the S&P 500 portfolio over the past 90 years has averaged roughly 8% more than the Treasury bill return and that the S&P 500 standard deviation has been about 20% per year. Assume these values are representative of investors' expectations for future performance and that the current T-bill rate is 5%. Calculate the utility levels of each portfolio for an investor with A = 3. Assume the utility function is u = E(r) - 0.5 × round intermediate calculations. Round your answers to 4 decimal places.) WBills 0.0 0.2 0.4 0.6 0.8 1.0 Windex 1.0 0.8 0.6 0.4 0.2 0.0 U(A = 3) Ao². (Do not

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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Consider historical data showing that the average annual rate of return on the S&P 500 portfolio over the past 85 years has averaged roughly 8% more than the Treasury bill return and that the S&P 500 standard deviation has been about 31% per year. Assume these values are representative of Investors' expectations for future performance and that the current T-bill rate is 3%. Calculate the utility levels of each portfolio for an Investor with A = 2. Assume the utility function is u = E(r) - 8.5 x Ao². Note: Do not round Intermediate calculations. Round your answers to 4 decimal places. Negative amounts should be Indicated by a minus sign. W Bills 0.0 0.2 0.4 0.6 0.8 1.0 Windex 1.0 0.8 0.6 0.4 Oo 0.2 0.0 U(A = 2)
Consider historical data showing that the average annual rate of return on the S&P 500 portfolio over the past 85 years has averaged roughly 8% more than the Treasury bill return and that the S&P 500 standard deviation has been about 33% per year. Assume these values are representative of investors' expectations for future performance and that the current T-bill rate is 4%. Calculate the utility levels of each portfolio for an investor with A = 2. Assume the utility function is U = E(r) Note: Do not round intermediate calculations. Round your answers to 4 decimal places. Negative amounts should be indicated by a minus sign. - 0.5 × Ag². X Answer is complete but not entirely correct. WIndex U(A = 2) 0.0111 0.0504 0.0808 x 0.1026 0.1164 X 0.1200 X WBills 0.0 0.2 0.4 0.6 0.8 1.0 1.0 0.8 0.6 0.4 0.2 0.0
Consider historical data showing that the average annual rate of return on the S&P 500 portfolio over the past 85 years has averaged roughly 8% more than the Treasury bill return and that the S&P 500 standard deviation has been about 25% per year. Assume these values are representative of investors' expectations for future performance and that the current T-bill rate is 4%. Calculate the utility levels of each portfolio for an investor with A = 3. Assume the utility function is U = E(r) 0.5 x Ao2. (Negative amounts should be indicated by a minus sign. Do not round intermediate calculations. Round your answers to 4 decimal places.) WBills 0.0 0.2 0.4 0.6 0.8 1.0 Windex 1.0 0.8 0.6 0.4 0.2 0.0 U(A = 3) -
Consider historical data showing that the average annual rate of return on the S&P 500 portfolio over the past 85 years has averaged roughly 8% more than the Treasury bill return and that the S&P 500 standard deviation has been about 28% per year. Assume these values are representative of investors' expectations for future performance and that the current T-bill rate is 6%. Calculate the utility levels of each portfolio for an investor with A-2. Assume the utility function is U = E(r) - 0.5 x Ao². (Do not round intermediate calculations. Round your answers to 4 decimal places. Negative amounts should be indicated by a minus sign.) WBills 0.0 0.2 0.4 0.6 0.8 1.0 Windex 1.0 0.8 0.6 0.4 0.2 0.0 U(A=2)
Consider historical data showing that the average annual rate of return on the S&P 500 portfolio over the past 85 years has averaged roughly 8% more than the Treasury bill return and that the S&P 500 standard deviation has been about 34% per year. Assume these values are representative of investors' expectations for future performance and that the current T-bill rate is 2%. x Ao². Calculate the utility levels of each portfolio for an investor with A = 2. Assume the utility function is U = E(r) - 0.5 × Note: Do not round intermediate calculations. Round your answers to 4 decimal places. Negative amounts should be indicated by a minus sign. W Bills 0.0 0.2 0.4 0.6 0.8 1.0 WIndex 1.0 0.8 0.6 0.4 0.2 0.0 U(A = 2)
Using the data in the following table, LOADING... , consider a portfolio that maintains a 75% weight on stock A and a 25% weight on stock B. a. What is the return each year of this portfolio? b. Based on your results from part (a), compute the average return and volatility of the portfolio. c. Show that (i) the average return of the portfolio is equal to the (weighted) average of the average returns of the two stocks, and (ii) the volatility of the portfolio equals the same result as from the calculation in Eq. 11.9. d. Explain why the portfolio has a lower volatility than the average volatility of the two stocks. Question content area bottom Part 1 a. What is the return each year of this portfolio? Enter the return of this portfolio for each year in the table below: (Round to two decimal places.) Year 2010 2011 2012 2013 2014 2015 Portfolio enter your response here% enter your response here% enter your response…
Consider historical data showing that the average annual rate of return on the S&P 500 portfolio over the past 85 years has averaged roughly 8% more than the Treasury bill return and that the S&P 500 standard deviation has been about 35% per year. Assume these values are representative of investors' expectations for future performance and that the current T-bill rate is 3%. Calculate the utility levels of each portfolio for an investor with A 2. Assume the utility function is u 8(2)-0.5 A². (Do not round intermediate calculations. Round your answers to 4 decimal places. Negative amounts should be indieated by a minus sign. WBills 0.0 0.2 04 0.6 0.8 1.0 Windex 1.0 0.8 0.6 0.4 0.2 0.0 U(A=2)
Suppose there is a risk-free asset whose return is 2% and that the market portfolio has an expected return of 10%. The standard deviation of the market portfolio is given 25% 1). Consider an asset that currently sells for $30 and has βi = 0.6. Suppose the asset pays a dividend of $1.5 and the expected price at the end of the period is $30.5. Calcuate the α of this asset. Is it over- or underpriced?2). Consider an asset with βi = 1.25 and expected return of 11%. Can an investor use this asset to make a risk-free profit through arbitrage? Explain your answer
I. Consider the following information about K oll and Nell for one-time period: Suppose that the correlation coefficient between the returns for Koll and Nell is -0.40'. If you invest 30% in Koll and 70% in Nell, what are the expected return and standard deviation of the portfolio? Interpret your results. II. The investor achieved the following annual rate of returns over the last four-year period: 25% in Y1, 15% in Y2, 20% in Y3, 10% in Y4. (a) Calculate the geometric average rate of return for the whole 4 year period. (b) Calculate the logarithmic average rate of return for the whole 4 year period. III. Suppose you have a portfolio of IBM and Dell with a beta of 0.4 and 1.1, respectively. If you put 40% of your money in IBM, 55% in Dell and 5% in the risk-free asset, calculate and interpret the beta of your portfolio. IV. Suppose that the beta value for Kei is 1.5, and the risk-free rate of interest is 4%. The investor wishes to (i) have a shareholding in only one company, Kei, and…
Using the data in the following table, consider a portfolio that maintains a 60% weight on stock A and a 40% weight on stock B. a. What is the return each year of this portfolio? b. Based on your results from part (a), compute the average return and volatility of the portfolio. c. Show that (i) the average return of the portfolio is equal to the (weighted) average of the average returns of the two stocks, and (ii) the volatility of the portfolio equals the same result as from the calculation in Eq. 11.9. d. Explain why the portfolio has a lower volatility than the average volatility of the two stocks. a. What is the return each year of this portfolio? Enter the return of this portfolio for each year in the table below: (Round to two decimal places.) Year 2012 Portfolio % 2010 % 2011 % b. Based on your results from part (a), compute the average return and volatility of the portfolio. The average return of the portfolio is%. (Round to two decimal places.) 2013 % 2014 % 2015 % The…
An analyst believes that inflation is going to increase by 2.0% over the next year, while the market risk premium will be unchanged. The analyst uses the Capital Asset Pricing Model (CAPM). The following graph plots the current SML. Calculate Happy Corp.'s new required return. Then, on the graph, use the green points (rectangle symbols) to plot the new SML suggested by this analyst's prediction. Happy Corp.'s new required rate of return is Tool tip: Mouse over the points on the graph to see their coordinates. REQUIRED RATE OF RETURN (Percent) 1.2 1.6 2.0 0.8 RISK (Beta) New SML ? The SML helps determine the risk-aversion level among investors. The higher the level of risk aversion, the the slope of the SML. Which of the following statements best describes the shape of the SML if investors were not at all risk averse? O The SML would be a horizontal line. O The SML would have a negative slope. O The SML would have a positive slope, but the slope would be steeper than it would be if…
Indicate whether the following statements are true or false (circle one). Use 1 or 2 sentences to discuss why it is so. (a) If R, is simple 1-month return, then the annualized return is 12 x R, after assuming all R = R. True False Why? (b) Let and r GSA be continuously compounded 1 - month returns for Goldman Sachs Group (GS) and American International Group (AIG). If we construct a portfolio using the share ain[0, 1] for GS, the portfolio cc return is ľ AIG = 0x*y +(1-x)*r True False Why? (c) In 5. (b)., if 5% quantile of the portfolio cc return is given as AIG, GS, r 40.05 = -0.5, then 5% monthly Value-at-Risk for the $10,000 investment in this portfolio is $10,000 × (-0.5) = -$ 5,000. True False r

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