Investment Alternatives Corn Belt (1) Central Valley (2) Great Plains (3) Exp. Return ri =0.14 r2=0.12 r3=0.07 Std. Dev. 01=0.08 02=0.05 03=0.01 Weight in Portfolio Wi=1/3 W2=1/3 W3=1/3 Correlation Among Investment 1 and 2 (p12) = 0.30 1 and 3 (P13) = -0.40 2 and 3 (p23) = -0.10 Portfolio Data for Financial Servicing Analysis Under Risk a. Calculate the expected return of the portfolio. b. Calculate the variance and the standard deviation of the portfolio. c. Calculate the variance and standard deviation of the portfolio assuming that the correlation among the investments is all equal to 0.

Investment Alternatives Corn Belt (1) Central Valley (2) Great Plains (3) Exp. Return ri =0.14 r2=0.12 r3=0.07 Std. Dev. 01=0.08 02=0.05 03=0.01 Weight in Portfolio Wi=1/3 W2=1/3 W3=1/3 Correlation Among Investment 1 and 2 (p12) = 0.30 1 and 3 (P13) = -0.40 2 and 3 (p23) = -0.10 Portfolio Data for Financial Servicing Analysis Under Risk a. Calculate the expected return of the portfolio. b. Calculate the variance and the standard deviation of the portfolio. c. Calculate the variance and standard deviation of the portfolio assuming that the correlation among the investments is all equal to 0.

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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What is the expected return of a portfolio of two risky assets if the expected return E(Ri), standard deviation (SDi), covariance (COVij), and asset weight (Wi) are as shown below? Asset (A) E(R₂) = 10% SDA = 8% WA = 0.25 COVAB = 0.006 Select one: A. 13.75% B. 7.72% C. 12.5% D. 8.79% Asset (B) E(RB) = 15% SDB = 9.5% WB = 0.75
Review the table below listing performance metrics for selected assets. The metrics are defined in the same way as in CAPM Return risk beta riskless asset 4% 0% 0 Market Portfolio 9% 24% 1 Fund A 8% 33% 0.4 Fund B 11% 30% 1.5
2) Calculate the envelope set (frontier) for the following four assets and show that the individual assets all lie within this envelope set. 123456 A B E A FOUR-ASSET PORTFOLIO PROBLEM C Variance-covariance 0.01 0.30 0.06 -0.04 0.10 0.01 0.03 0.05 0.03 0.06 0.40 0.02 D 0.05 -0.04 0.02 0.50 F Mean returns 6% 8% 10% 15%
What is the expected return of a portfolio of two risky assets if the expected return E(Ri), standard deviation (SDi), covariance (COVij), and asset weight (Wi) are as shown below? Asset (A) E(R₂) = 25% SDA = 18% WA = 0.75 COVA, B = -0.0009 Select one: A. 13.65% B. 20 U ODN 20.0% C. 18.64% D. 22.5% Asset (B) E(R₂) = 15% SDB = 11% WB = 0.25
Let each decision variable, A, P, M, H, and G, represent the fraction or proportion of the total investment placed in each investment alternative. Max 0.073A + 0.103P + 0.064M + 0.075H + 0.045Gs.t. A + P + M + H + G = 1 0.5A + 0.5P - 0.5M - 0.5H <= 0 -0.5A - 0.5P + 0.5M + 0.5H <= 0 -0.25M - 0.25H + G >= 0 -0.6A + 0.4P >= 0 A, P, M, H, G <= 0 a. What fraction of the portfolio should be invested in each type of security (A, P, M, H, G)?b. How much should be invested in each type of security?c. What are the total earnings for the portfolio?d. What is the marginal rate of return on the portfolio? That is, how much more could be earned by investing one more dollar in the portfolio? *Please use excel solver & show all steps**
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) Asset (A) Asset (B) E(RA)=10% E(RB) = 15% (σA)=8% (GB) = 9.5% WA = 0.25 WB = 0.75 COVA.B = 0.006 What is the standard deviation of this portfolio? O 13.75% O 8.79% O 12.5% O 7.72%
What is the expected return of a portfolio of two risky assets if the expected return E(Ri), standard deviation (SDi), covariance (COVij), and asset weight (Wi) are as shown below? Asset (A) E(RA) = 25% SDA = 18% WA = 0.75 COVAB= -0.0009 Asset (B) E(R₂) = 15% SDB = 11% W₁ = 0.25
4. Explain what the Capital Asset Pricing Model (CAPM) is and calculate and explain the result of the CAPM based on the following data. a. Expected Return: 8% b. Risk-free rate: 4% c. Beta of the investment: 1.2 ER=Rf+B(ERm - Rf) where: ER = expected return of investment Rf risk-free rate B;= beta of the investment - (ERm - Rf) = market risk premium
What is the expected return of a portfolio of two risky assets if the expected return E(Ri), standard deviation (SDi), covariance (COVij), and asset weight (Wi) are as shown below? Asset (A) E(R₁) = 10% SDA = 8% WA = 0.25 COVAB = 0.006 Asset (B) E(R₂) = 15% SDB = 9.5% WB = 0.75
Q5. You are considering two assets with the following characteristics. Return Standard deviation Weights Asset 1 Asset 2 0.15 0.20 0.10 0.20 0.5 0.5 Compute the standard deviation of two portfolios if r1,2 = 0.40 and -0.60, respectively.
Q/ Demonstrating the formation of an investment portfolio from the two sides (G.H) if the rates of return are favorable for each of them As follows - RG = 0.16,0.24,0.26, 0.14,0.20 RII = 0.32,0.24,0.28,0.20,0.36 %3D Required 1- Assuming that the investor will shape this portfolio. He allocated u of his wealth to the first investment and 25% of it to the second investment, and the correlation coefficient = 1 %3D what is The expected rate of return for the portfolio
Investment Expected Return Standard Deviation1 0.12 0.302 0.15 0.503 0.21 0.164 0.24 0.21Based on the utility formula we covered in lectures,a. Calculate the utility of each investment alternative for an investor with risk averse A=4:The utility of Investment 1The utility of Investment 2The utility of Investment 3The utility of Investment 4b. State which investment you would select if you were risk averse with A=4: Blank 5. Fill in the blank, read surrounding text. c. State which investment you would select if you were risk averse with A=2: Blank 6. Fill in the blank, read surrounding text.. d. State which investment you would select if you were risk neutral: Blank 7. Fill in the blank, read surrounding text.

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