Suppose that • Return Ri:35% RM:28% • Volatility σi: 42% σM: 30% • Find a portfolio combination with the same level of risk than the benchmark (market)
Suppose that • Return Ri:35% RM:28% • Volatility σi: 42% σM: 30% • Find a portfolio combination with the same level of risk than the benchmark (market)
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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Question
Suppose that
• Return Ri:35% RM:28%
• Volatility σi: 42% σM: 30%
• Find a portfolio combination with the same level of risk than the
benchmark (market)
Expert Solution
Step 1
According to Modigliani’s Risk adjustment performance measure, a portfolio can be levered or de-levered, that is shift upward or downward, to match the risk level of the market.
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