1. Consider a portfolio that offers an expected rate of return of 11% and a standard deviation of 22%. T-bills offer a risk-free 4% rate of return. What is the maximum level of risk aversion for which the risky portfolio is still preferred to T-bills? (Do not round intermediate calculations. Round your answer to 2 decimal places.) 2.You manage a risky portfolio with an expected rate of return of 19% and a standard deviation of 30%. The T-bill rate is 4%. Your client chooses to invest 75% of a portfolio in your fund and 25% in an essentially risk-free money market fund. What is the expected return and standard deviation of the rate of return on his portfolio? (Do not round intermediate calculations. Round "Standard deviation" to 1 decimal place.)
Risk and return
Before understanding the concept of Risk and Return in Financial Management, understanding the two-concept Risk and return individually is necessary.
Capital Asset Pricing Model
Capital asset pricing model, also known as CAPM, shows the relationship between the expected return of the investment and the market at risk. This concept is basically used particularly in the case of stocks or shares. It is also used across finance for pricing assets that have higher risk identity and for evaluating the expected returns for the assets given the risk of those assets and also the cost of capital.
1. Consider a portfolio that offers an expected
What is the maximum level of risk aversion for which the risky portfolio is still preferred to T-bills? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
2.You manage a risky portfolio with an expected rate of return of 19% and a standard deviation of 30%. The T-bill rate is 4%.
Your client chooses to invest 75% of a portfolio in your fund and 25% in an essentially risk-free
3.You manage a risky portfolio with an expected rate of return of 19% and a standard deviation of 30%. The T-bill rate is 4%. Your client chooses to invest 75% of a portfolio in your fund and 25% in a T-bill money market fund.
What is the reward-to-volatility (Sharpe) ratio (S) of your risky portfolio? Your client’s? (Do not round intermediate calculations. Round your answers to 4 decimal places.)
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