Efficient Diversification chapter 6 in Essential of investimats 9th global edition

Part TWO Portal Theory money market fund that yields risky funds are are rate of the probability distributions of the Expected Return Standard Deviation 18 Bond und El The correlation between the fund returns is 13. Tabulate and draw the investment opportunity set of the two risky funds. Use invest- ment proportions for the stock fund of 0% to 100in increments of 20%. What expected return and standard deviation does your ph show for the minimum-variance portfolio? (LO 6-2) 9. Draw a tangent from the risk-free rate to the opportunity set. What does your graph show for the expected return and standard deviation of the optimal risky portfolio (LO 6-3) 10. What is the reward-to-volatility ratio of the best feasible CAL (LO 6-3) H. Suppose now that your portfolio must yield an expected return of 15% and be efficient, that is, on the best feasible CAL (LO 6-4) a. What is the standard deviation of your portfolio? 6. What is the proportion invested in the T-bill find and each of the two risky funds 12. If you were to use only the two risky funds and still require an expected return of 12%, what would be the investment proportions of your portfolio? Compare its standard deviation to that of the optimal portfolio in the previous problem. What do you conclude? (LO 6-4) 13. Stocks offer an expected rate of return of 10% with a standard deviation of 20%, and gold offers an expected return of 5% with a standard deviation of 25%. (LO 6-3) 4. In light of the apparent inferiority of gold to stocks with respect to both mean return and volatility, would anyone hold gold? If so, demonstrate graphically why one would do so. 6. How would you answer (a) if the correlation coefficient between gold and stocks were 1 Draw a graph illustrating why one would or would not hold gold. Could these expected returns, standard deviations, and correlation represent an equilibrium for the security market? 14. Suppose that many stocks are traded in the market and that it is possible to borrow at the risk-free rate, T. The characteristics of two of the stocks are as follows: Stock Expected Return Standard Deviation 10% 25% 75 Correlation = -1 Could the equilibrium r, be greater than 12%? (Hint: Can a particular stock portfol substituted for the risk-free asset?) (LO 6-3) 5. You can find a spreadsheet containing the historic returns presented in Table 5.2 L u towthooke hodie ( al for the lin Part TWO Portal Theory money market fund that yields risky funds are are rate of the probability distributions of the Expected Return Standard Deviation 18 Bond und El The correlation between the fund returns is 13. Tabulate and draw the investment opportunity set of the two risky funds. Use invest- ment proportions for the stock fund of 0% to 100in increments of 20%. What expected return and standard deviation does your ph show for the minimum-variance portfolio? (LO 6-2) 9. Draw a tangent from the risk-free rate to the opportunity set. What does your graph show for the expected return and standard deviation of the optimal risky portfolio (LO 6-3) 10. What is the reward-to-volatility ratio of the best feasible CAL (LO 6-3) H. Suppose now that your portfolio must yield an expected return of 15% and be efficient, that is, on the best feasible CAL (LO 6-4) a. What is the standard deviation of your portfolio? 6. What is the proportion invested in the T-bill find and each of the two risky funds 12. If you were to use only the two risky funds and still require an expected return of 12%, what would be the investment proportions of your portfolio? Compare its standard deviation to that of the optimal portfolio in the previous problem. What do you conclude? (LO 6-4) 13. Stocks offer an expected rate of return of 10% with a standard deviation of 20%, and gold offers an expected return of 5% with a standard deviation of 25%. (LO 6-3) 4. In light of the apparent inferiority of gold to stocks with respect to both mean return and volatility, would anyone hold gold? If so, demonstrate graphically why one would do so. 6. How would you answer (a) if the correlation coefficient between gold and stocks were 1 Draw a graph illustrating why one would or would not hold gold. Could these expected returns, standard deviations, and correlation represent an equilibrium for the security market? 14. Suppose that many stocks are traded in the market and that it is possible to borrow at the risk-free rate, T. The characteristics of two of the stocks are as follows: Stock Expected Return Standard Deviation 10% 25% 75 Correlation = -1 Could the equilibrium r, be greater than 12%? (Hint: Can a particular stock portfol substituted for the risk-free asset?) (LO 6-3) 5. You can find a spreadsheet containing the historic returns presented in Table 5.2 L u towthooke hodie ( al for the lin