Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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Chapter 5, Problem 13PS
For Problems 12-16, assume that you manage a risky portfolio with an expected
13. Suppose the same client in the previous problem decides to invest in your risky portfolio
a proportion (y) of his total investment budget so that his overall portfolio will have an expected rate of return of 15%. (LO 53)
a. What is the proportion y?
b. What are your client’s investment proportions in your three stocks and in T-bills?
e. What is the standard deviation of the rate of return on your client’s portfolio?
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Students have asked these similar questions
9.
Suppose you plan to form your overall investment portfolio in two steps:
STEP 1: Choose a portfolio of stocks with a zero position in the risk-free asset.
STEP 2: Allocate your money between the portfolio from Step 1 and the risk-free asset.
Suppose you can borrow and lend as much as you want at the risk-free rate in Step 2.
Let Erp be the expected return of the Step 1 portfolio.
Let Var(rp) be the variance of the return of the Step 1 portfolio. Let rf be the risk-free rate.
How will you form the Step 1 Portfolio?
Set the Step 1 portfolio to maximize Erp
SettheStep1portfoliotominimizeVar(rp)
Set the Step 1 portfolio to maximize Erp - Var(rp)
Set the Step 1 portfolio to maximize the ratio Erp/Var(rp)
Set the Step 1 portfolio to maximize the ratio (Erp- rf)/Var(rp)
None of the above.
Consider the following information about a risky portfolio that you manage and a risk-free asset: E(rp) = 8%, op = 15%, rf = 2%.
Required:
a. Your client wants to invest a proportion of her total investment budget in your risky fund to provide an expected rate of return on
her overall or complete portfolio equal to 8%. What proportion should she invest in the risky portfolio, P, and what proportion in the
risk-free asset?
b. What will be the standard deviation of the rate of return on her portfolio?
c. Another client wants the highest return possible subject to the constraint that you limit his standard deviation to be no more than
12%. Which client is more risk averse?
Complete this question by entering your answers in the tabs below.
Required A Required B
Required C
Risky portfolio
Risk-free asset
Answer is complete but not entirely correct.
Your client wants to invest a proportion of her total investment budget in your risky fund to provide an expected rate of return
on her overall…
The risky portfolio expected return and standard
deviation is 14% and 20%, respectively. The risk free rate
is 5%. The risk aversion coefficient A is 2.5 and 4 for Mary
and Kim, respectively. Answer the following questions:
A. Who is more risk averse?
B. What is the capital allocation y to the risky portfolio for
each investor?
C. Suppose investors have the following utility function:
U = E(R) - ¹2 Ao²
Calculate the Utility level for each investor's optimal
complete portfolio.
Chapter 5 Solutions
Essentials Of Investments
Ch. 5 - Prob. 1PSCh. 5 - The real interest rate approximately equals the...Ch. 5 - When estimating a Sharpe ratio, would it make...Ch. 5 - You’ve just decided upon your capital allocation...Ch. 5 - Prob. 5PSCh. 5 - The stock of Business Adventures sells for $40 a...Ch. 5 - Prob. 7PSCh. 5 - a. Suppose you forecast that the standard...Ch. 5 - Using the historical risk premiums as your guide,...Ch. 5 - What has been the historical average real rate of...
Ch. 5 - Consider a risky portfolio. The end-of-year cash...Ch. 5 - For Problems 12-16, assume that you manage a risky...Ch. 5 - For Problems 12-16, assume that you manage a risky...Ch. 5 - For Problems 12-16, assume that you manage a risky...Ch. 5 - For Problems 12-16, assume that you manage a risky...Ch. 5 - For Problems 12-16, assume that you manage a risky...Ch. 5 - Prob. 17PSCh. 5 - You manage an equity fund with an expected risk...Ch. 5 - What is the reward-to--volatility (Sharpe) ratio...Ch. 5 - A portfolio of nondividend-paying stocks earned a...Ch. 5 - Which of the following statements about the...Ch. 5 - Which of the following statements reflects the...Ch. 5 - Use the following data in answering CFA Questions...Ch. 5 - Prob. 5CPCh. 5 - Lise the following data in answerifng CFA Question...Ch. 5 - Use the following scenario analysis for stocks X...Ch. 5 - Prob. 8CPCh. 5 - Use the following scenario analysis for stocks X...Ch. 5 - 10. Probabilities for three states of the economy...Ch. 5 - 11. An analyst estimates that a stock has the...Ch. 5 - Prob. 1WMCh. 5 - Prob. 2WMCh. 5 - Prob. 3WM
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