Raghubhai You are constructing a portfolio of two assets, Asset A and Asset B. The expected returns of the assets are 14 percent and 17 percent,respectively. The standard deviations of the assets are 40 percent and 48 percent, respectively. The correlation between the twoassets is 0.63 and the risk-free rate is 4.3 percent. What is the optimal Sharpe ratio in a portfolio of the two assets? What is the smallestexpected loss for this portfolio over the coming year with a probability of 16 percent? (A negative value should be indicated by aminus sign. Do not round intermediate calculations. Round your Sharpe ratio answer to 4 decimal places and the z-score value to3 decimal places when calculating your answer. Enter your smallest expected loss as a percent rounded to 2 decimal places.)Sharpe ratioSmallest expected loss%

Part 2: Explanation:Step 1: To calculate the expected return of the portfolio, we multiply the…

Answered: You are constructing a portfolio of two…

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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You are constructing a portfolio of two assets, Asset A and Asset B. The expected returns of the assets are 12 percent and 15 percent, respectively. The standard deviations of the assets are 29 percent and 48 percent, respectively. The correlation between the two assets is .25 and the risk-free rate is 5 percent. What is the optimal Sharpe ratio in a portfolio of the two assets? What is the smallest expected loss for this portfolio over the coming year with a probability of 2.5 percent?
You are constructing a portfolio of two assets, Asset A and Asset B. The expected returns of the assets are 13 percent and 16 percent, respectively. The standard deviations of the assets are 39 percent and 47 percent, respectively. The correlation between the two assets is 61 and the risk-free rate is 5.3 percent. What is the optimal Sharpe ratio in a portfolio of the two assets? What is the smallest expected loss for this portfolio over the coming year with a probability of 1 percent? (A negative value should be indicated by a minus sign. Do not round intermediate calculations. Round your Sharpe ratio answer to 4 decimal places and the z-score value to 3 decimal places when calculating your answer. Enter your smallest expected loss as a percent rounded to 2 decimal places.) Sharpe ratio Smallest expected loss %
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?
am. 113.
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You are constructing a portfolio of two assets. Asset A has an expected return of 12 percent and a standard deviation of 24 percent. Asset B has an expected return of 18 percent and a standard deviation of 54 percent. The correlation between the two assets is 0.20 and the risk-free rate is 4 percent. What is the weight of each asset in the portfolio of the two assets that has the largest possible Sharpe ratio? (Do not round intermediate calculations. Enter your weights as a percent rounded to 2 decimal places. Round the Sharpe ratio to 4 decimal places.) Weight of Asset A Weight of Asset B Sharpe ratio % %
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