You manage a risky portfolio with an expected rate of return of 18% and a standard deviation of 29%. The T-bill rate is 5%.Suppose that your client prefers to invest in your fund a proportion y that maximizes the expected return on the complete portfoliosubject to the constraint that the complete portfolio's standard deviation will not exceed 18%.a. What is the investment proportion, y? (Round your answer to 2 decimal places.)Investment proportion y%b. What is the expected rate of return on the complete portfolio? (Do not round intermediate calculations. Round your answer to 2decimal places.)Rate of return%

Expected return of risky portfolio (Re) = 18% Standard deviation of risky portfolio (SDe) = 29%…

Answered: You manage a risky portfolio with an…

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

See similar textbooks

Similar questions

You manage a risky portfolio with an expected rate of return of 19% and a standard deviation of 31%. The T-bill rate is 5%. Suppose that your client prefers to invest in your fund a proportion y that maximizes the expected return on the complete portfolio subject to the constraint that the complete portfolio’s standard deviation will not exceed 19%. a. What is the investment proportion, y? (Round your answer to 2 decimal places.) b. What is the expected rate of return on the complete portfolio? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
You manage a risky portfolio with an expected rate of return of 17% and a standard deviation of 28%. The T-bill rate is 7%. Your client's degree of risk aversion is A = 2.0, assuming a utility function u E(r) = A0². a. What proportion, y, of the total investment should be invested in your fund? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Investment proportion y Expected return Standard deviation - % b. What are the expected value and standard deviation of the rate of return on your client's optimized portfolio? (Do not round intermediate calculations. Round your answers to 2 decimal places.) % %
You manage a risky portfolio with an expected rate of return of 17% and a standard deviation of 36%. The T-bill rate is 6%. Your client's degree of risk aversion is A = 3.1, assuming a utility function u = E(r) A02. a. What proportion, y, of the total investment should be invested in your fund? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Investment proportion y % b. What are the expected value and standard deviation of the rate of return on your client's optimized portfolio? (Do not round intermediate calculations. Round your answers to 2 decimal places.) Expected return % Standard deviation %
Assume that you manage a risky portfolio with an expected rate of return of 14% and a standard deviation of 46%. The T-bill rate is 4%. Your client chooses to invest 85% of a portfolio in your fund and 15% in a T-bill money market fund. Required: a. What are the expected return and standard deviation of your client's portfolio? (Round your answers to 1 decimal place.) Expected retum Standard deviation b. Suppose your risky portfolio includes the following investments in the given proportions: 30% 30 40 Stock A Stock B Stock C What are the investment proportions of your client's overall portfolio, including the position in T-bills? (Round your answers to 1 decimal place.) Security T-Bills Stock A Stock B Stock C Investment Proportions % per year % per year % % % % Risky portfolio Client's overall portfolio c. What is the reward-to-volatility ratio (S) of your risky portfolio and your client's overall portfolio? (Round your answers to 4 decimal places.) Reward-to-Volatility Ratio
f. Assume a Portfolio of two assets A and B whose standard deviations of their returns are 8.6% and 10.8% respectively, while their correlation coefficient of returns is Pas = - 0.61. You are given the right to do portfolio optimization without restrictions. What proportions would you choose and why?
You manage a risky portfolio with an expected rate of return of 19% and a standard deviation of 32%. The T-bill rate is 7%. Your client’s degree of risk aversion is A = 3.3, assuming a utility function U = E(r) - ½Aσ². a. What proportion, y, of the total investment should be invested in your fund? (Do not round intermediate calculations. Round your answer to 2 decimal places.) b. What is the expected value and standard deviation of the rate of return on your client’s optimized portfolio? (Do not round intermediate calculations. Round your answers to 2 decimal places.)
You manage a risky portfolio with an expected rate of return of 10% and a standard deviation of 34%. The T-bill rate is 4%. Suppose that your client prefers to invest in your fund a proportion y that maximizes the expected return on the complete portfolio subject to the constraint that the complete portfolio's standard deviation will not exceed 10%. Required: a. What is the investment proportion, y? b. What is the expected rate of return on the complete portfolio?
Assume that you manage a risky portfolio with an expected rate of return of 20% and a standard deviation of 41%. The T-bill rate is 4% A client prefers to invest in your portfolio a proportion (y) that maximizes the expected return on the overall portfolio subject to the constraint that the overall portfolio's standard deviation will not exceed 30%. Required: a. What is the investment proportion, y? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Investment proportion y % b. What is the expected rate of return on the overall portfolio? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Rate of return %
Use the following CAPM equation for a portfolio to answer the questions that follow:E(RP) = RF + βP (RM – RF) = 1 + 0.8 (5 – 1) = 4.2% a) Is the portfolio defensive or aggressive. Why? b) If the actual portfolio return is 6%, what is the portfolio’s alpha?
You are given the following information concerning three portfolios, the market portfolio, and the risk-free asset: Portfolio X Y Z Market Risk-free Rp 11.0% ор 33.00% 10.0 28.00 8.1 10.4 5.2 18.00 23.00 Ө вр 1.45 1.20 0.75 1.00 Ө Assume that the correlation of returns on Portfolio Y to returns on the market is 0.66. What percentage of Portfolio Y's return is driven by the market? Note: Enter your answer as a decimal not a percentage. Round your answer to 4 decimal places. R-squared
from the table below. Assuming the risk- free rate is 5%. A. Choose the best portfolio according to the Sharpe measure with explanation. B. Choose the best portfolio according to the Treynor measure with explanation. C. Choose the best portfolio according to the Jensen measure with explanation. Portfolio A 0.1 0.1 0.11 0.11 0.12 0.12 0.13 0.14 0.14 0.18 0.16 0.18 0.17 0.18 0.18 0.18 0.18 0.17 0.17 0.18 Portfolio B 0.12 0.12 0.16 0.2 0.14 0.16 0.17 0.14 0.18 0.2 0.18 0.16 0.17 0.2 0.22 0.22 0.18 0.2 0.24 0.24 Mraket M 0.09 0.09 0.1 0.1 0.11 0.11 0.11 0.12 0.12 0.13 0.12 0.14 0.12 0.14 0.13 0.13 0.13 0.14 0.14 0.13
The risk free rate is 3%. The optimal risky portfolio has an expected return of 9% and standarddeviation of 20%. Answer the following questions.a) Assume the utility function of an investor is U = E(r) − 0.5Aσ2. What is condition ofA to make the investors prefer the optimal risky portfolio than the risk free asset? b) Assume the utility function of an investor is U = E(r) − 2.5σ2. What is the expectedreturn and standard deviation of the investor’s optimal complete portfolio?

SEE MORE QUESTIONS

Recommended textbooks for you

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

SEE MORE TEXTBOOKS