Example 3Inns oont alafrAFollowing Example 2, consider a porfolio with three assets S1, S2 andS3 which have expected rates of return 0.1,0.15 and 0.2 respectively,and variance-covariance matrixodni tanoma bszt a aitevi ot botoly0.1 0.1 -0.10.1 0.2 0.1olollesV =-0.1 0.1 0.6vo ) isaas sod slais a at gaiteoo ottg ndi oda vodT(aldanoitesupals ot-lais wod ibuadala abnod ona) What is the optimal portfolio when up =worod of sidad= 0.2.adt yhalinieini ba moe jaSOLUTIONlo ano ot b) Use this piece of information and the earlier optimal portfolios fromla aao e. Example 2 to find the quadratic equation relating of and up.ni bstni sdSOLUTIONtar oad o bo se) Hence draw a plot of the solutions, and identify the frontier port-Ldon to slarfolios.itSOLUTIONodsBtvnigatela dt

Note: This post has three subparts. The second part contains a reference to an optimal portfolio…

Example 3 ss oont alaft A Following Example 2, consider a porfolio with three assets S1, S2 and S3 which have expected rates of return 0.1,0.15 and 0.2 respectively, and variance-covariance matrix moms bazi a gaitewni ot botoly V = 0.1 0.1 -0.1 Y ilata 0.1 0.2 0.1 dolollen -0.1 0.1 0.6 3) 1sas sod slas a at aaite oo sAair wod oule vodT abaod to ats a) What is the optimal portfolio when up = 0.2. wor %3D side adt vhalimie

Example 3 ss oont alaft A Following Example 2, consider a porfolio with three assets S1, S2 and S3 which have expected rates of return 0.1,0.15 and 0.2 respectively, and variance-covariance matrix moms bazi a gaitewni ot botoly V = 0.1 0.1 -0.1 Y ilata 0.1 0.2 0.1 dolollen -0.1 0.1 0.6 3) 1sas sod slas a at aaite oo sAair wod oule vodT abaod to ats a) What is the optimal portfolio when up = 0.2. wor %3D side adt vhalimie

Essentials of Business Analytics (MindTap Course List)

2nd Edition

ISBN:9781305627734

Author:Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, David R. Anderson

Publisher:Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, David R. Anderson

Chapter5: Probability: An Introduction To Modeling Uncertainty

Section: Chapter Questions

Problem 28P

See similar textbooks

Similar questions

EXAMPLE• Consider the following information:State Probability ABC, Inc. ReturnBoom .25 0.15Normal .50 0.08Slowdown .15 0.04Recession .10 -0.03• What is the expected return?• What is the variance?• What is the standard deviation?
Complete the table below using CAPM model Case Expected return RF RM Beta A ? % 10% 18% 0.8
Su 2 The standard deviation of return on investment A is 19%, while the standard deviation of return on investment B is 14%. If the covariance of returns on A and B is 0.004, the correlation coefficient between the returns on A and B is 00:05:46 臺 Mc Graw Hill Delivery co ler.
omplete the table below using CAPM model Case Expected return RF RM Beta B 9% 8% 10% ?
Given the following probability distribution of returns: Probability Return 0.1 -15.0% 0.25 0.0% 0.3 8.5% 0.25 12.0% 0.1 32.0% what is the expected return?
a. Using the data in the table below alculate the following performance measures.i. Sharpe ratioii. Treynor measureiii. Jensen’s alphaiv. M-squared measurev. T-squared measure, andvi. Appraisal ratio (information ratio) Fund Average return Standard Deviation Beta coefficient Unsystematic Risk A 0.240 0.220 0.800 0.017 B 0.200 0.170 0.900 0.450 C 0.290 0.380 1.200 0.074 D 0.260 0.290 1.100 0.026 E 0.180 0.400 0.900 0.121 F 0.320 0.460 1.100 0.153 G 0.250 0.190 0.700 0.120 Market 0.220 0.180 1.000 0.000 Risk free return 0.050 0.000 b. Out of the performance measures you calculated in part a., which one would you use undereach of the following circumstances:i. You want to select one of the funds as your risky portfolio.ii. You want to select one of the funds to be mixed with the rest of your portfolio,currently composed solely of holdings in the market-index fund.iii. You want to select one of the funds to form an actively managed stock portfolio
The expected value, standard deviation of returns, and coefficient o below.) \table[[Asset A],[Possible Outcomes,Probability,Returns (%)
Security A has the following probability distribution of returns:Scenario Probability Return 1 0.1 15% 2 0.8 25% 3 0.1 35%What is the variance for Security A?
M102LON/JAN 3. Security A has the following probability distribution of returns: Scenario Probability Return 1 0.1 15% 2 0.8 25% 0.1 35% What is the variance for Security A? a. 0.002 b. 0.020 С. 0.200 d. 0.300 3.
What would be the expected value, variance and standard deviation of an event that always took the value one as its outcome? O 1, 0,0 О 1, 1,0 O 1, 0, 1 О 1, 1, 1
Suppose two asset returns are described by a two factor model, n = 0% + 11 + 1.82 + e1 2 = -1% + 2/1 + 0.52 + e2 where the volatility of first factor is 30%, the volatility of the second factor is 10%, and the correlation between the two factors is 0.5. Suppose also that the volatilities of the error terms ej and ez are both 10%. What is the covariance of n and r2 ? (Nearest 0.0001).
Question 3 The Black-Scholes model is a time series (X₂) that follows the dynamics X₁ = X₁-1*exp(μ+0€) where μ, >0 and () is a time series of independent and identically distributed standard Gaussian random variables. Note that E(exp(μ+σt)) = "¹+0² (i) Show that the log-returns of this process X, form a white noise process (ii) Suppose E(X) = 0. Compute E(X₂). Determine if the variance of X, is falling, remains constant or is growing in t.