Determine the weights of a portfolio with a standard deviation of 7% created by combining T-Bill and the market portfolio. b) Determine which of A or B is over-valued or undervalued. c) How will you invest $1000 in riskless T-bills and the risky assets in the Market Portfolio to maintain a standard deviation of 10%.
Determine the weights of a portfolio with a standard deviation of 7% created by combining T-Bill and the market portfolio. b) Determine which of A or B is over-valued or undervalued. c) How will you invest $1000 in riskless T-bills and the risky assets in the Market Portfolio to maintain a standard deviation of 10%.
Chapter8: Analysis Of Risk And Return
Section: Chapter Questions
Problem 13P
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Question
The following expected return and the standard deviation of current returns are known:
Security (i) | Expected Return | Standard Deviation |
βi |
A | 0.20 | 0.12 | 1.1 |
B | 0.12 | 0.10 | 0.8 |
T-Bills | 0.05 | 0 | 0 |
Market Portfolio | 0.20 | 0.15 | 1 |
a) Determine the weights of a portfolio with a standard deviation of 7% created by combining T-Bill and the market portfolio.
b) Determine which of A or B is over-valued or undervalued.
c) How will you invest $1000 in riskless T-bills and the risky assets in the Market Portfolio to maintain a standard deviation of 10%.
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