Answered: portfolio's expected return

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portfolio's expected return

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter11: Capital Budgeting And Risk

Section: Chapter Questions

Problem 20P

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Question

1. Your investment has a 20% chance of earning a 10% rate of return, a 70% chance of earning a 30% rate of return, and a 10% chance of losing 15%. What is the standard deviation on this investment?

2. If you are promised a nominal return of 12.5% on a 1-year investment, and you expect the rate of inflation to be 8.5%, what real rate do you expect to earn?

3. Treasury bills are paying a 2.5% rate of return. A risk-averse investor with a risk aversion of A = 1.9 should invest entirely in a risky portfolio with a standard deviation of 5% only if the risky portfolio's expected return is at least

NOTE: All answers should be express in strictly numerical terms. For example, if the answer is 5%, write 0.05

Definition Definition Percentage gain or loss from a specific investment over time. The rate of return is the difference between the closing and initial values of an investment divided by the initial value of the investment. The closing value includes any intermediate cash flows such as dividends or interest amounts.

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