Asset Return Standard Deviation12%20%0% Cov(A,B) There are two types of investors in the market. Investor X: has a Risk aversion level of 0.5 Investor Y: has a Risk aversion level of 4.5 For both investors find the respective weights of assets in (1) optimal risky portfolio and the (2) optimal complete portfolio given the following market situations: Lending is allowed at risk-free rate and borrowing is allowed at 7% A B 8% 13% 5% 72
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- 2. Assuming the following: Average Return (Risky Portfolio) 3.86% Standard Dev (Risky Portfolio) 10.56% Average Risk Free Rate 2.18% Return on Risk Free Asset Avg 4.15% Using the formula: E(rc)=rf + y* (E(rp) - rf) Solve for: 1. % of Risky Assets (y): 2. % of Risk Free Assets (1-y): Note: You wish to generate a 7% return for your complete portfolio E(rc)D4) Finance Consider a portfolio composed of shares AAA and BBB as shown in the following table. At 95% confidence level, select the correct statement AAA BBB Value 2,470,000 785,750 % investment 76% 24% Volatilities 2.32 % 2.69 % Correlation for both assets 0.65 Portfolio Value for both assets 3,255,750 a) The Component VaR of the Asset AAA is 92,223 and the component VaR of the Asset BBB is 27955.69 b) The contribution to the VaR of the Asset AAA is 77% and the one of the Asset 2 is 23% c) Both answers are correctINV 1 4b You have invested in a portfolio of 60% in risky assets (Portfolio R) and 40% in T-bills. The risky portfolio is described below: E(rR)=12% σR =15% T-bill rate 3% Expected Return on Overall Portfolio is 8.4% What is the standard deviation of your overall portfolio?
- . E(RI) = .15(.11) + .55(.18) + .30(.08) Using CAPM to determine the expected rate of return for risky assets, consider the following example stocks, assuming that you have already compute the betas Stock Beta WND 0.80 STA 1.35 CTE 1.15 DUY 1.20 EVN -0.20 Stock WND the economy’s RFR to be 6 percent (0.06) and the expected return on the market portfolio (E(RM)) to be 8 percent (0.08) Stock STA, the economy’s RFR to be 5percent (0.05) and the expected return on the market portfolio (E(RM)) to be 7 percent(0.07) Assume that all the other stocks is as follows since we expect the economy’s RFR to be 5 percent (0.05) and the expected return on the market portfolio (E(RM)) to be 9 percent (0.09),IBM AMZN E(R) 0.07 0.11 Standard Deviation0.10 0.18 Correlation0.45 Suppose you have the above data on IBM and Amazon, compute the expected return and the standard deviation of an equally weighted portfolio invested in the two securitiesis there a diversification benefit? Please show your work and round to at least 3 decimal placesYou invest $1,028 portfolio holding a risky asset and a Treasury bill. You expect the portfolio to reach a value of $1,105 in 1 year. Expected Return of Risky Asset: 27% Standard Deviation of Risky Assets: 11% Expected Return of Treasury Bill: 3% This is only possible if the weight of the risky asset is ____________________________. *Please round to the nearest two decimals. *Please state your answer as percentage and not as decimal (i.e. 40 and not 0.40) *Please do not use the symbol %
- QH. The data for the two companies X and Y are as follows: X Y Return 20% 23% Risk ( SD) 21% 25% r 0.4 Find the portfolio risk if 50% of funds is allocated for each. Determine the correlation coefficient that would be necessary to reduce the level of portfolio risk by 25%.Year Risk free rate (%) Return_risk-free asset 2011 4.51 - 2012 3.11 2013 2.61 2014 2.75 2015 2.34 2016 1.78 2017 1.77 2018 2.02 2019 0.90 2020 0.02 Average Calculate return on risk free asset and its average and assume: Average (Return on Risky Portfolio) 3.86% Standard deviation (Risky Portfolio) 10.56% Expected Return (Complete Portfolio) 7% Solve for the proportions of y and (1-y) such that: E(Rc)=Rf+y[E(rp)-rf]) = 7%Data: S0 = 107; X = 110; 1+r = 1.12. The two possibilities for ST are 155 and 95. (Round to 2 decimal places). a. The range of S is 60 while that of P is 15 across the two states. What is the hedge ratio of the put? Hedge ratio ? b. Form a portfolio of one share of stock and four puts. What is the (nonrandom) payoff to this portfolio? Nonrandom payoff c. What is the present value of the portfolio? Present value d. Given that the stock is currently selling at 107, calculate the put value. Put value
- Q No 3 Assume you are a portfolio manager at JS Global Capital Ltd. Recently you came across three attractive stocks and want to create a portfolio investment in these three stocks. The details of the stocks are given below: Company name Volatility (Standard deviation) Weight in Portfolio Correlation with the market portfolio Engro Ltd 25% 0.30 0.40 Lucky Cement Ltd 12% 0.30 0.60 FFC Ltd 13% 0.40 0.50 The expected return on the market portfolio is 8% and its volatility is 10%. The risk-free rate based on central bank’s discount rate is 3%. Calculate each of the stock’s expected return and risk (beta) as compared to the market What should be the expected return of the portfolio based on values calculated in part a. Calculate the beta of the portfolio? what does it tells regarding the riskiness of the portfolio?Problem 13-10 Returns and Standard Deviations [LO1] Consider the following information: State of Economy Probability of State of Economy Rate of Return if State Occurs Stock A Stock B Stock C Boom .15 .37 .47 .27 Good .45 .22 .18 .11 Poor .35 −.04 −.07 −.05 Bust .05 −.18 −.22 −.08 a. Your portfolio is invested 20 percent each in A and C, and 60 percent in B. What is the expected return of the portfolio? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) b-1. What is the variance of this portfolio? (Do not round intermediate calculations and round your answer to 5 decimal places, e.g., .16161.) b-2. What is the standard deviation? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)6) Assume that stock market returns do follow a single-index structure. An investment fund analyzes 1000 stocks in order to construct a mean-variance efficient portfolio constrained by 500 investments. They will need to calculate ________ estimates of firm-specific variances and ________ estimate/estimates for the variance of the macroeconomic factor. A) 500; 1 B) 1000; 1 C) 124,750; 1 D) 124,750; 500 E) 250,000; 500 Choose the correct option th justification.