11. Suppose that there are two assets, A and B, and their returns are derived by the two-factor model below: R = a + bill + balta The first factor has an expected rate of return of l=5% and a standard deviation 0,23%. The second factor has an expected rate of return of ly12% and a standard deviation 0,5%. The returns between the two factors and the returns between the idiosyncratic component of each asset and each factor are uncorrelated. The risk free rate of return is RF 2%. The table below summarises the coefficients abb and the standard deviation of the error form for each asset 0.4% ASSA Asset ba 0.5 a. Estimate the expected returns and the standard deviation of returns for the two sets 15 marks] b. Find the optimal risky portfolo and calculate its expected retum and its standard deviation of returns 15 marks c. Mrs. has an initial wealth W.10.000.000. Her state-specific utility as a function of her wealth is given by the equation below. Compute her overall optimal portfolio by investing her wealth in assets A and the risk-free 25.000.000 [10 mais! MacBook Air 888 $ % 5 6 7 8 9 R T Y I O AD AaBbCcDc ABCcDdEt AaBb Heading 1 Heading 2 Normal No Spacing Title 11. Suppose that there are two assets, A and B, and their retums are derived by the two-factor model below. Ri= a + bash+balta The first factor has an expected rate of retum of 1,5% and a standard deviation 0.3%. The second factor has an expected rate of return of 12% and a standard deviation 0,5%. The returns between the two factors and the returns between the Idiosyncratic component of each asset and each factor are uncorrelated. The risk- free rate of return is RF = 2%. The table below summarises the coefficients a bubur and the standard deviation of the error term for each asset: a 0.4% bi Asset A be 0.1 0.1 Asset B 1.4% 02 a. Estimate the expected returns and the standard deviation of returns for the two assets 15 marks] b. Find the optimal risky portfolio and calculate its expected return and its standard deviation of returns (5 marks] c. Mrs. H has an initial wealth Wo10,000,000. Her state-specific utility as a function of her wealth is given by the equation below. Compute her overall optimal portfolio by investing her wealth in assets A, B and the risk-free asset I 25,000,000 [10 marks] MacBook Air 11. Suppose that there are two assets, A and B, and their returns are derived by the two-factor model below: R = a + bill + balta The first factor has an expected rate of return of l=5% and a standard deviation 0,23%. The second factor has an expected rate of return of ly12% and a standard deviation 0,5%. The returns between the two factors and the returns between the idiosyncratic component of each asset and each factor are uncorrelated. The risk free rate of return is RF 2%. The table below summarises the coefficients abb and the standard deviation of the error form for each asset 0.4% ASSA Asset ba 0.5 a. Estimate the expected returns and the standard deviation of returns for the two sets 15 marks] b. Find the optimal risky portfolo and calculate its expected retum and its standard deviation of returns 15 marks c. Mrs. has an initial wealth W.10.000.000. Her state-specific utility as a function of her wealth is given by the equation below. Compute her overall optimal portfolio by investing her wealth in assets A and the risk-free 25.000.000 [10 mais! MacBook Air 888 $ % 5 6 7 8 9 R T Y I O AD AaBbCcDc ABCcDdEt AaBb Heading 1 Heading 2 Normal No Spacing Title 11. Suppose that there are two assets, A and B, and their retums are derived by the two-factor model below. Ri= a + bash+balta The first factor has an expected rate of retum of 1,5% and a standard deviation 0.3%. The second factor has an expected rate of return of 12% and a standard deviation 0,5%. The returns between the two factors and the returns between the Idiosyncratic component of each asset and each factor are uncorrelated. The risk- free rate of return is RF = 2%. The table below summarises the coefficients a bubur and the standard deviation of the error term for each asset: a 0.4% bi Asset A be 0.1 0.1 Asset B 1.4% 02 a. Estimate the expected returns and the standard deviation of returns for the two assets 15 marks] b. Find the optimal risky portfolio and calculate its expected return and its standard deviation of returns (5 marks] c. Mrs. H has an initial wealth Wo10,000,000. Her state-specific utility as a function of her wealth is given by the equation below. Compute her overall optimal portfolio by investing her wealth in assets A, B and the risk-free asset I 25,000,000 [10 marks] MacBook Air