Question
Three investments are provided as follow: Investment X: Risky asset; 15% return, 1600% 2 variance Investment Y: Risky asset; 10% return, 225% 2 variance Investment
Three investments are provided as follow:
Investment X: Risky asset; 15% return, 1600%2 variance
Investment Y: Risky asset; 10% return, 225%2 variance
Investment Z: Risk-free asset; 6% return
The correlation of the return for X and Y is exactly 1.
(a) State the volatility of X and Y.
(b) Write the volatility of a portfolio P1, with x invested in investment X and (1 x ) invested in investment Y. (0 x 1)
(c) Find the value of x such that a portfolio P2 formed is risk-free. What is the risk-free rate from P2?
(d) The risk-free rate you obtained from P2 is higher than that from Investment Z. Will anyone actually invest in investment Z then, why? Assume that everyone thinks that higher return is always better. Because of such an action, what do you think for the future price of the portfolio P2; will it increase or decrease?
Three investments are provided as follow:
Investment X: Risky asset; 15% return, 1600%2 variance
Investment Y: Risky asset; 10% return, 225%2 variance
Investment Z: Risk-free asset; 6% return
The correlation of the return for X and Y is exactly 1.
(a) State the volatility of X and Y.
(b) Write the volatility of a portfolio P1, with x invested in investment X and (1 x ) invested in investment Y. (0 x 1)
(c) Find the value of x such that a portfolio P2 formed is risk-free. What is the risk-free rate from P2?
(d) The risk-free rate you obtained from P2 is higher than that from Investment Z. Will anyone actually invest in investment Z then, why? Assume that everyone thinks that higher return is always better. Because of such an action, what do you think for the future price of the portfolio P2; will it increase or decrease?
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The Palgrave International Handbook Of Basic Income
Authors: Malcolm Torry
1st Edition
3030236137, 978-3030236137
