Suppose that each of two investments has a 2% chance of a loss of $4 million and a 98% chance of a loss of $2 million. They are independent of each other. What is the expected shortfall for a portfolio consisting of the two investments when the confidence level is 95%? Round your answer to two decimal places.

Suppose that each of two investments has a 2% chance of a loss of $4 million and a 98% chance of a loss of $2 million. They are independent of each other. What is the expected shortfall for a portfolio consisting of the two investments when the confidence level is 95%? Round your answer to two decimal places.

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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State the return rate (in %) for your optimal portfolio.
Consider two different assets. Asset A has a mean expected return of 6% with a standard deviation of 22%. Asset B has a standard deviation of returns of 32%. What should be the mean expected return on asset B for a rational investor to be indifferent about these two investments? Answer only if you are 100% sure, other wise i will report your answer.
Parts A-C have already been answered, looking for answer D.
D6)
You are evaluating various investment opportunities currently available and you have the fol-lowing information about five different well-diversified portfolios of risky assets. Interest raterf = 3% a) Calculate the Sharpe ratio for each portfolio. (b) Explain which of these five portfolios is most likely to be the optimal risky portfolio. (c) Suppose you are willing to invest with an expected return of 6%. What would be theinvestment proportions in the riskless asset and the optimal risky portfolio? What is thestandard deviation of the return for this investment?
Suppose you are considering investing your entire portfolio in three assets A, B and C. You expect that after you invest, four possible mutually exclusive scenarios will occur, with associated returns (in %) for each of the three assets as listed below. The probability of each scenario is given below. A B C Probabilities return 0.05 0.50% -3.60% 3.60% 0.35 0.60% 2.75% 0.15% 0.45 3.66% 1.45% 0.45% 0.15 -4.80% -0.60% 6.30% Find the expected returns and standard deviations of Asset A, B & C. (HINT: the expected return is given by the probability-weighted sum of returns in each scenario. The expected standard deviation is given by the square root of the probability-weighted sum of squared deviations from the expected return.) Is there any reason to invest in Asset A given its low expected return and high standard deviation?
1. Suppose you have n risky assets you can combine in a portfolio. Each risky asset has an expected return of 8% and a standard deviation of 30%. The risky assets are uncorrelated with each other. (a) Consider an equally weighted portfolio of 2 of these securities. What is its expected return? What will its standard deviation be? (b) Consider an equally weighted portfolio of 30 of these securities. What is its expected return? What will its standard deviation be? (c) Suppose we let the number of these securities increase without bound. That is, n→ ∞o. What happens to the standard deviation of an equally weighted portfolio of these securities as the number of assets in the portfolio becomes extremely large? What will the riskless rate be in this case, and why? -int IDE
Consider a portfolio that offers an expected rate of return of 11% and a standard deviation of 26%. T-bills offer a risk-free 7% rate of return. What is the maximum level of risk aversion for which the risky portfolio is still preferred to T-bills? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
Suppose that you have found the optimal risky combination using all risky assets available in the economy, and that this optimal risky portfolio has an expected return of 0.19 and standard deviation of 0.24. The T-bill rate is 0.05. What fraction of your money must be invested in the optimal risky portfolio in order to form a complete portfolio with an expected return of 0.09? Round your answer to 4 decimal places. For example, if your answer is 3.205 %, then please write down 0.0321..
Consider a position consisting of 200,000 investment in asset A and 300,000 investment in asset B. Assume that the daily volatility of the assets are 1.5% and 1.8% respectively, and that coefficient of correlation between their returns is 0.4. What is the five day 95% VAR for the portfolio (given 95% confidence level represents 1.65 standard deviations on the left side of the normal distribution)?
You have been asked for your advice in selecting a portfolio of assets and have been supplied with the following data:. You have been told that you can create two portfolios-one consisting of assets A and B and the other consisting of assets A and C-by investing equal proportions (50%) in each of the two component assets. a. What is the average expected return, r, for each asset over the 3-year period? b. What is the standard deviation, s, for each asset's expected return? c. What is the average expected return, rp, for each of the portfolios? d. How would you characterize the correlations of returns of the two assets making up each of the portfolios identified in part c? e. What is the standard deviation of expected returns, Sp, for each portfolio? f. What would happen if you constructed a portfolio consisting of assets A, B, and C, equally weighted? Would this reduce risk or enhance return?
Mansuk

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