Question
you are evaluating various investment opportunities currently available and you have calculated expected returns and standard deviations for five different well-diversified portfolios of risky assets:
you are evaluating various investment opportunities currently available and you have calculated expected returns and standard deviations for five different well-diversified portfolios of risky assets:
Portfolio | Expected Return | Standard Deviation | ||
Q | 8.9 | % | 10.0 | % |
R | 10.2 | 13.4 | ||
S | 4.7 | 5.3 | ||
T | 11.2 | 16.2 | ||
U | 6.0 | 8.4 |
For each portfolio, calculate the risk premium per unit of risk that you expect to receive ([E(R) - RFR]/). Assume that the risk-free rate is 4.0 percent. Round your answers to four decimal places.
Q:
R:
S:
T:
U:
Using your computations in Part (a), explain which of these five portfolios is most likely to be the market portfolio. Round your answer to four decimal places.
Portfolio -Select-QRSTUItem 6 has the -Select-highestlowestItem 7 ratio of risk premium per unit of risk, , of these five portfolios so it is most likely the market portfolio.
Choose the correct CML graph.
The correct graph is -Select-graph Agraph Bgraph Cgraph DItem 9 .
A. | |
B. | |
C. | |
D. |
If you are only willing to make an investment with = 7.0%, is it possible for you to earn a return of 7.0 percent? Do not round intermediate calculations. Round your answer to one decimal place.
Expected portfolio return: %
It -Select-isis notItem 11 possible to earn an expected return of 7.0% with a portfolio whose standard deviation is 7.0%.
What is the minimum level of risk that would be necessary for an investment to earn 7.0 percent? Do not round intermediate calculations. Round your answer to one decimal place.
%
What is the composition of the portfolio along the CML that will generate that expected return? Round your answers to four decimal places.
wMKT:
wrisk-free asset:
Suppose you are now willing to make an investment with = 17.0%. What would be the investment proportions in the riskless asset and the market portfolio for this portfolio? Use a minus sign to enter negative values, if any. Round your answers to four decimal places.
wMKT:
wrisk-free asset:
What is the expected return for this portfolio? Round your answer to one decimal place.
%
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