Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Input Data E (TA) E (TM) T-bill 0.15 0.10 0.05 GA 0.5 OM P(AM) A's risk premium M's risk premium 0.2 -0.2 0.1 0.05 1
Input Data E (TA) E (TM) T-bill 0.15 0.10 0.05 GA 0.5 OM P(AM) A's risk premium M's risk premium 0.2 -0.2 0.1 0.05 1 3 4 (a) portfolio weight in A 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Opportunity Set portfolio weight risky portfolio risky portfolio in M Std expected return Sharpe ratio 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 3 3 3 1 3 WA WM 00 E(ro) Sharpe (b) Identify optimal risky portfolio O 3 1 2 3 4 (c) Write the equation of the optimal CAL: (d) Suppose an investor chooses to allocate 70.00% to the optimal risky portfolio O His complete portfolio composition in A, M and the T-bills should be WA WM WRF OC E(rc) (e) The expected return and the estimated risk of his complete portfolio is, (f) By his capital allocation choice, his risk aversion coefficient is Input Data E (TA) E (TM) T-bill 0.15 0.10 0.05 GA 0.5 OM P(AM) A's risk premium M's risk premium 0.2 -0.2 0.1 0.05 1 3 4 (a) portfolio weight in A 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Opportunity Set portfolio weight risky portfolio risky portfolio in M Std expected return Sharpe ratio 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 3 3 3 1 3 WA WM 00 E(ro) Sharpe (b) Identify optimal risky portfolio O 3 1 2 3 4 (c) Write the equation of the optimal CAL: (d) Suppose an investor chooses to allocate 70.00% to the optimal risky portfolio O His complete portfolio composition in A, M and the T-bills should be WA WM WRF OC E(rc) (e) The expected return and the estimated risk of his complete portfolio is, (f) By his capital allocation choice, his risk aversion coefficient is
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started