You have been hired as a portfolio manager for Mr. Franklin Clinton who can always invest money in his own car repossession business, which generates 5% return per period without risk (risk-free), i.e. R,=5%. An asset C is a risky asset with a 20% expected return, and the standard deviation of this return is 8%. If Mr. Clinton invests 75% of his money in asset C and 25% in his own business. The standard deviation of his investment is; % (please keep one decimal place) Another asset D is a risky asset with a rate of return 35%, and the standard deviation is 15%. What is the price of the risk of asset D (Please input an integer) Again, we assume Mr. Clinton only likes to invest in one risky asset at a time. Mr. Clinton told you that he always would like to give up 1.5% expected rate of return for 1 unit of less risk (standard deviation), and vice verse. How many percent of his wealth should he invest in asset D? %. (Please input an integer)

You have been hired as a portfolio manager for Mr. Franklin Clinton who can always invest money in his own car repossession business, which generates 5% return per period without risk (risk-free), i.e. R,=5%. An asset C is a risky asset with a 20% expected return, and the standard deviation of this return is 8%. If Mr. Clinton invests 75% of his money in asset C and 25% in his own business. The standard deviation of his investment is; % (please keep one decimal place) Another asset D is a risky asset with a rate of return 35%, and the standard deviation is 15%. What is the price of the risk of asset D (Please input an integer) Again, we assume Mr. Clinton only likes to invest in one risky asset at a time. Mr. Clinton told you that he always would like to give up 1.5% expected rate of return for 1 unit of less risk (standard deviation), and vice verse. How many percent of his wealth should he invest in asset D? %. (Please input an integer)

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 have $5000 to invest for 1 year. Fund A has an estimated 4% annual return, and Fund B has an estimated 10% annual return. Fund A is more stable, and preferred among investors with low risk tolerance. Fund B is less stable, but has larger returns. Answer the following questions about this investment opportunity. 1. Suppose you have a low risk-tolerance, and you invest everything in Fund A. How much do you expect to make on your investment?Round to the nearest cent. 2. Suppose you have a medium risk-tolerance, and you want an annual return of $355. You decide to invest part in Fund A and the rest in Fund B. How much do you need to invest in Fund A?
Being Finance Manager of Salalah Textiles Industries, you need to invest an amount for OMR 50,000 in the investment market. Assume the market rate of return is 0.11, risk free rate of return is 2.75% and Beta is .73, then:Required:a) What should be required rate of return for your investment?b) Keeping the answer of question # 2a in mind, if different investment options are available with different returns in the investment market, for example:i. For investment in Project-A, 6.30% return is offered;ii. For investment in Project-B, 10.95% return is offered, andiii. For investment in Project-C, 5.65% return is offered.In above scenario, explain whether any why these investment options are overvalued or undervalued? Keeping the answer of question # 2a and 2b, what will be your investment decision (justify your answer with reasons)
As a junior investment manager, your boss instructs you to help a client to invest $100,000 for the next year. Particularly, you are asked to form an investment portfolio for the client by investing in risk-free assets like 90-day bank bill and two stocks: A and B. Stock A has a beta value of 0.8, an expected return of 7% and a standard deviation of 10%; and stock B has a beta value of 1.2, an expected return of 12% and a standard deviation of 15%. The correlation coefficient between the returns for the two stocks is 0. The risk-free rate is 2%. (a) What is the expected return of the risky portfolio with the two stocks that has the least amount of risk? (b) Suppose that the optimal risky portfolio with the two stocks has a weight of 53% in A and 47% in B, and has the expected return of 9.4% and standard deviation of 8.8%. If this client is willing to take a risk measured by standard deviation of 5% for his overall investment portfolio, how much would you recommend to the client to…
One of our clients, Mr. Choi, currently has an investment portfolio value of $1mil. His portfolio consists of 70% risky portfolio and 30% risk-free asset. If Mr. Choi has now extra $100,000 cash to invest, and if he is a constant relative risk aversion, how do you think he wants to allocate his extra $100,000 over the risky and the risk-free asset? Assume that Mr. Choi’s utility is a power function with gamma= 2 If another client, Mr. Smith, also has a power utility function but has a larger risk preference parameter value of gamma than Mr. Choi does, how does Mr. Smith want his money to be allocated relative to Mr. Choi?
Ms. B has $1000 to invest. She is considering investing in the common stock of company M. In addition, Ms. B will either borrow or lend at the risk-free rate. Ms. B decide to invest $350 in common stock of company M and $650 placed in the risk- free asset. The relevant parameters are 1) What is the expected return? 2) What is the variance of the portfolio? 3) What is the standard deviation of the portfolio?
One of our clients, Mr. Lee, currently has an investment portfolio value of $1mil. His portfolio consists of 70% risky portfolio and 30% risk-free asset. If Mr. lee has now extra $100,000 cash to invest, and if he is a constant relative risk aversion, how do you think he wants to allocate his extra $100,000 over the risky and the risk-free asset?
Your father asks for an investment advice. Currently, he has Ghc100,000 invested in portfolio P, which has an expected return of 10.5% and a volatility of 8%. Suppose the risk free rate is 5%, and the tangent portfolio has an expected return of 18.5% and a volatility of 13%. a) To maximize his expected return, without increasing his volatility, which portfolio would you recommend? b) If your father prefers to keep his expected return the same but minimize his risk, which portfolio would you recommend.
As a junior investment manager, your boss instructs you to help a client to invest $100,000for the next year. Particularly, you are asked to form an investment portfolio for the clientby investing in risk-free assets like 90-day bank bill and two stocks: A and B. Stock A hasa beta value of 0.8, an expected return of 7% and a standard deviation of 10%; and stockB has a beta value of 1.2, an expected return of 12% and a standard deviation of 15%.The correlation coefficient between the returns for the two stocks is 0. The risk-free rate is2%.(a) What is the expected return of the risky portfolio with the two stocks that has theleast amount of risk?(b) Suppose that the optimal risky portfolio with the two stocks has a weight of 53% inA and 47% in B, and has the expected return of 9.4% and standard deviation of8.8%. If this client is willing to take a risk measured by standard deviation of 5% forhis overall investment portfolio, how much would you recommend to the client toinvest in the…
An investment advisor currently has two types of investments available for clients: a conservative investment A that pays 8% per year and investment B of higher risk that pays 14%. Clients may divide their investments between the two to achieve any total return desired between 8% and 14%. However, the higher the desired return, the higher the risk. How should each client listed in the table invest to achieve the desired return? Client 1 Client 2 Client 3 k $21000 $40000 $31000 k, Annual Return Desired $2460 $3860 $3740 k2 Total Investment How much money should Client 1 invest in each account to achieved the desired return? Amount in investment A: Amount in investment B: How much money should Client 2 invest in each account to achieved the desired return? Amount in investment A: Amount in investment B: How much money should Client 3 invest in each account to achieved the desired return? Amount in investment A: Amount in investment B:
Provide an analysis of how the following investment patterns can be explained using theories of behavioral finance. 1. In his portfolio, an investor owns two things:He paid $100 for Asset A, which is now worth $150. He paid $200 for Asset B, which is now worth $150.The investor needs $150 as soon as possible. He really wants to sell asset A, even though he hasn't looked into the two assets any further.
Compute the expected rate of return of Miss Dimaano considering her security for her work as a freelance investment banker based on the following figures: Risk free rate = 4%; Expected return of the market = 12%; Systematic risk b of the security = 1.3.
Jupiter is considering investing time and administrative expense on an effort that promises one large payoff in the future, followed by additional expenses over a 10-year horizon. The cash flow profile is shown in the table below. Jupiter’s MARR is 12%/year. Solve, a. What is the present worth of this investment? b. What is the decision rule for judging the attractiveness of investments based on present worth? c. Should Jupiter invest?

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