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 14PS
For Problems 12-16, assume that you manage a risky portfolio with an expected
14. Suppose the same client as in the previous problem 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 20%. (LO 5-3)
a. What is the investment proportion, y?
b. What is the expected rate of return on the overall portfolio?
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4. Suppose portfolio P's expected return in 12%, its volatility (standard deviation) is 20%, and the risk-free
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A financial advisor is offering you a product with an expected return of 8% and a return standard deviation of 12%. Is this an efficient
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O a. The offered portfolio is more efficient than an optimal portfolio
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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?
Chapter 5 Solutions
Essentials Of Investments
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