Question
Use the incomplete data below to answer the following questions. Security/Portfolio Expected Return, E[R] Net Dollar Value Owned T-bills (risk-free asset) 0.04 ? Market Portfolio
Use the incomplete data below to answer the following questions. Security/Portfolio | Expected Return, E[R] | Net Dollar Value Owned |
T-bills (risk-free asset) | 0.04 | ? |
Market Portfolio | 0.12 | ? |
Portfolio X | ? | $1,000.00 |
T-bills and the Market Portfolio are the only two components of Portfolio X. T-bills may be held long or short (i.e., T-bills may have positive or negative weights in Portfolio X).
2. $400 of Portfolio X is invested in the market portfolio. Determine the following:
xT-bills: ________ xMarket: ________ X: ________ E[RX]: _____________
3. Ignore question 2, $200 of Portfolio X is invested in T-bills. Determine the following:
xT-bills: ________ xMarket: ________ X: ________ E[RX]: _____________
4. Ignore questions 2 and 3. When constructing portfolio X you shorted $800 worth of T-bills (or borrowed $800). Determine the following:
xT-bills: ________ xMarket: ________ X: ________ E[RX]: _____________
5. Ignore the data in questions 2-4. Assume portfolio X has an expected return of 8%. What are the following?
xT-bills: _________________ xMarket: _________________ X: _________________
6. Ignore the data in questions 2-5. Assume portfolio X has an expected return of 30%. What are the following?
xT-bills: _________________ xMarket: _________________ X: _________________
Dollar amount in T-bills: $___________ Dollar amount in the Market: $___________
Explain what these answers mean in the space below:
7. If the market portfolio has = 0.40, and Portfolio Xs proportion invested in T-bills is 25%, then what are the following:
X = _____________________________
X = _____________________________
XM = _____________________________
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