Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

1). Sylvia is a risk-averse investor. The expected return of Portfolio A is 10% and the standard deviation is 14%. Portfolio B has s =

1). Sylvia is a risk-averse investor. The expected return of Portfolio A is 10% and the standard deviation is 14%. Portfolio B has s = 22.75%, and has end-of-year cash flows of either $74,000 or $80,000 with probabilities of 40% and 60% respectively. The risk free rate is 2%.At what price for portfolio B would Sylvia be indifferent between portfolio A and B?

2). You are considering investing $1 million in a T-bill, that pays 5% return, and a risky portfolio, P, constructed with 2 risky securities, X and Y. The weights of X and Y in portfolio P are 60% and 40%, respectively. X has an expected rate of return of 14% and variance of 100, and Y has an expected rate of return of 10% and a variance of 81. If you want to form a portfolio with an expected rate of return of 10%, how much of your money must you invest in the T-bill and , X, & Y, respectively if you keep X and Y in the same proportions to each other as in portfolio P?

3). You have two available risky assets to invest in:Asset A and Asset B.Asset A has an expected return of 18% and a standard deviation of 35%; Asset B has an expected return of 10% and a standard deviation of 20%.You are asked to create the minimum variance portfolio. Assume that assets A and B are perfectly negatively correlated.

a)What are the weights of each asset in the portfolio you create? (2 marks)

b)What is the expected return of your portfolio?(2 marks)

c)What is the standard deviation of your portfolio?(2 marks)

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Exchange Rates and International Finance

Authors: Laurence Copeland

6th edition

273786040, 978-0273786047

More Books

Students also viewed these Finance questions