Layout References Mailings Review View Help Tell me what you want to do 1 ttx 1No Spac.. Heading !!Normal Itch Paragraph Font Problem #3 ! The historical average annual rate of return on the S&P/TSX Composite Index has averaged approximately 6.3% more than the Treasury bill return, and its standard deviation was 16.42% per year. Assume that these values are representative of investor's expectations for future performance and that the current T-bill rate is 4%. a) Calculate the expected return and standard deviation of portfolios invested in T-bills and the S&P/TSX Composite Index with weights as follows: (6 marks) Portfolio A Portfolio B Portfolio C Portfolio D 100% .bills; 0% Index 80% T-bills, 20% Index 60% T-bills; 40% Index 40% T-bills; 60% Index 20% T-bills; 80% Index 0%T-bills; 100% Index Portfolio E Portfolio F b) Calculate the utility levels for each portfolio calculated above, for an investor with a degree of risk aversion of A-3. (6 marks) c) Repeat the calculation in part (b) for an investor with A-5. (6 marks) d) What are your conclusions? (2 marks) a) What if loe wants to invest a proportion in your fund (risky portfolio) that maximizes the expected return on his overall portfolio but does not exceed a standard deviation of 18 What is the proportion? (2 marks) b) What if Joe becomes more cautious about his investment decision and his degree of risk aversion is now 3. (5 marks) What is the optimal amount he should invest in your fund (risky portfolio)? (2 marks) i. i. What is the expected return of the optimal complete portfolio? (2 marks) ii. What is the standard deviation of the complete portfolio? (1 mark) Problem P6 marks) Layout References Mailings Review View Help Tell me what you want to do 1 ttx 1No Spac.. Heading !!Normal Itch Paragraph Font Problem #3 ! The historical average annual rate of return on the S&P/TSX Composite Index has averaged approximately 6.3% more than the Treasury bill return, and its standard deviation was 16.42% per year. Assume that these values are representative of investor's expectations for future performance and that the current T-bill rate is 4%. a) Calculate the expected return and standard deviation of portfolios invested in T-bills and the S&P/TSX Composite Index with weights as follows: (6 marks) Portfolio A Portfolio B Portfolio C Portfolio D 100% .bills; 0% Index 80% T-bills, 20% Index 60% T-bills; 40% Index 40% T-bills; 60% Index 20% T-bills; 80% Index 0%T-bills; 100% Index Portfolio E Portfolio F b) Calculate the utility levels for each portfolio calculated above, for an investor with a degree of risk aversion of A-3. (6 marks) c) Repeat the calculation in part (b) for an investor with A-5. (6 marks) d) What are your conclusions? (2 marks) a) What if loe wants to invest a proportion in your fund (risky portfolio) that maximizes the expected return on his overall portfolio but does not exceed a standard deviation of 18 What is the proportion? (2 marks) b) What if Joe becomes more cautious about his investment decision and his degree of risk aversion is now 3. (5 marks) What is the optimal amount he should invest in your fund (risky portfolio)? (2 marks) i. i. What is the expected return of the optimal complete portfolio? (2 marks) ii. What is the standard deviation of the complete portfolio? (1 mark) Problem P6 marks)
