Suppose you form a portfolio consisting of $31,000 invested in a mutual fund with beta of 1.6, $18,000 invested in $19,000 invested in an index fund with the same beta as the entire market. Expected market risk premium is 6.3% Risk-free rate is 0.8% What the expected return of this portfolio according to the CAPM? a. 6.9% Ob. 6.6% O c. 7.2% d. 9.1% e. 5.8%

(c)) Discuss the following graphic, which shows the relationship between expected return and portfolio weights. The portfolio is comprised of a debt security D and an equity security E. What would the portfolio strategy be when Wp = 2 and ba WE = -1? 38 (33) -0.5 Expected Return 13% 8% Debt Fund 0 (ebenso) esenicut adol leu@ ledol (loorba (ognerloxel) Ismet tametnl Equity Fund 1.0 0 OC) becida nieu to 2.0 w (stocks) AB -1.0 68 XO.YOUTS RO w (bonds)=1-w (stocks) 15 V10 anollesup Figure 7.3 Portfolio expected return as a function of investment proportions la 21101TO

You are holding a portfolio with the following investments and betas: Stock Dollar investment Beta А $250,000 1.25 B 200,000 1.70 с 400,000 0.85 D 150,000 -0.25 Total investment $1,000,000 The market's required return is 10% and the risk-free rate is 3%. What is the portfolio's required return? Do not round intermediate calculations. Round your answer to three decimal places. %

Risk-free rate is 7%, expected return on the market portfolio is 12%. Identify the correct equation for Security Market Line (SML): a. r = 5% + b(7%) b. r = 7% + b (12%) c. r = 7% + b (5%) d. r = 5% + b (12%)

Question 1: Assume that you manage a risky portfolio with an expected rate of return of 17% and a standard deviation of 27%. The T-bill rate is 7%. Your client chooses to invest 70% of a portfolio in your fund and 30% in a T-bill money market fund. Stock A Stock B Stock C 1. Calculate the client expected return on the complete portfolio 2. Calculate the reward-to-variability ratio (Sharpe ratio): Part B A three-asset portfolio has the following characteristics: Expected Return Asset X Y Z 15% 10 6 Standard Deviation What is the expected return on this three-asset portfolio? 27% 33% 40% 22% 8 3 Weight 0.50 0.40 0.10

1.  What is your expected portfolio return of an investment portfolio with a 60/40 allocation of stocks and bonds, respectively, if you expect long term equities to return 8%, and long term bonds to return 2%?     5.6%     6.2%     4.8%     5.1% 2.  You are looking into developing your first investment portfolio.  After assessing your risk tolerance, you believe that an 90/10 allocation of stocks and bonds, respectively, is where you want to begin.  You believe that 7% is what stocks will return over the next ten years, and 4% is what you expect to return in your bond portfolio.  If you invest $300/month for the next ten years, what will your portfolio be worth?      $51,077     $47,579     $52,843     $44,880

Quantitative Problem: You are holding a portfolio with the following investments and betas: Stock Dollar investment Beta   A $300,000 1.2 B 200,000 1.6 C 400,000 0.75 D 100,000 -0.35 Total investment $1,000,000   The market's required return is 11% and the risk-free rate is 4%. What is the portfolio's required return? Do not round intermediate calculations. Round your answer to three decimal places.

Consider following information on a risky portfolio, risk-free asset and the market index. What is the Sharpe ratio of the market index?   Risky portfolio Risk-free asset Market index Average return 8.2% 2% 6% Std. Dev. 26%   20% Residual std. dev. 10%     Alpha 1.4%     Beta 1.2

Consider following information on a risky portfolio, risk-free asset and the market index. What is the M2 of the risky portfolio?   Risky portfolio Risk-free asset Market index Average return 8.2% 2% 6% Std. Dev. 26%   20% Residual std. dev. 10%     Alpha 1.4%     Beta

Consider the information on the market, the risk-free asset, and a mutual fund. You want to build a two-asset portfolio comprising the market portfolio and the risk-free asset such that your portfolio beta is the same as the mutual fund. What is the portfolio weight on the market in your portfolio? Mutual Fund Market Risk Free E(k) 11.1% 8.5% 2.0% Beta 1.4 1 0