None For Problems 10 through 12: Consider historical data showing that the average annual rate of return on the S&P 500 portfolio over thepast 95 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 2%.10. Calculate the expected return and variance of portfolios invested in T-bills and the S&P 500 index with weights as follows:Wbills0Windex1.00.20.80.40.60.60.40.80.21.0011. Calculate the utility levels of each portfolio of Problem 10 for an investor with A = 2. What do you conclude?12. Repeat Problem 11 for an investor with A = 3. What do you conclude?

Answered: For Problems 10 through 12: Consider…

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) 0.5 × Ao². Note: 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 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)
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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 28% per year. Assume these values are representative of investors' expectations for future performance and that the current T-bill rate is 2%. Calculate the expected return and variance of portfolios invested in T-bills and the S&P 500 index with weights as shown below. Note: Round your "Expected Return" answers to 2 decimal places and "Variance" 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 Expected Return 10.00 % % % % % % Variance 0.0784 Example
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 expected return and variance of portfolios invested in T-bills and the S&P 500 index with weights as shown below. (Enter your answers as decimals rounded to 4 places. Leave no cells blank - be certain to enter "O" wherever required.) WBills WIndex Expected Return Variance 0.0 1.0 0.1200 0.0625 Example 0.2 0.8 0.4 0.6 0.6 0.4 0.8 0.2 1.0 0.0
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