Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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Textbook Question
Chapter 5, Problem 6CP
Lise the following data in answerifng CFA Question 4-6.
Investment
Expected Return, E(r)
Standard Deviation, 6
1 0.12 030 2 0.15 0.50 3 0.21 016 4 0.24 021
Suppose investor “satisfaction” with a portfolio increases with expected return an d decreases with variance according to the following uti1ity” formula: U = E(r) - ½ Ar2 where A denotes the investor’s risk aversion.
6. The variable (A) in the utility formula represents the: (LO 5-4)
a. Investor’s return requirement.
b. Is higher when the investor demands a greater risk premium as compensation for a given increase in the variance of returns.
c. Preference for one unit of return per four units of risk.
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Students have asked these similar questions
Portfolios A and B are both well-diversified. The risk-free rate is 8%. The return for the market is 10%.
Portfolio A has an expected return of 15% and beta of 1.1. Portfolio B has an expected return of 9% and beta
of 0.20. Portfolio A's variance is 9%, whilst Portfolio B's variance is 5.5%.
Calculate for Portfolio A and Portfolio B the following:
1. Sharpe's Measure,
2. Treynor's Measure,
3. Jensen's Measure.
Which is the better portfolio according to each measure?
Assume we beleive a 1 factor APT model describes securities returns. Consider 2 assets with the following data
Security
A
B
Suppose the relevant variances are:
Component
Systematic Factor
Expected Return
5.65%
9.06%
€ A
EB
Variance
10.0365
0.0387
0.039
Beta
0.5
1.6
1. The beta of an equally weighted portfolio is: Number
2. The the variance of an equally weighted portfolio is (answer exactly): Number
3. Compute the risk free rate : Number
Supposing the return from an investment has the following probability distribution
Return Probability
R (%)
8 0.2
10 0.2
12 0.5
14 0.1
Required:
What is the expected return of the investment?
What is the risk as measured by the standard deviation of expected returns?
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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