Q7. (7 points) The following graph depicts the expected returns and standard deviations of 6 differentassets. You are a risk-averse investor who plans to invest in one (and only one) of those assets. Youhave no other information on the assets. Which assets would you definitely NOT choose?ExpectedReturnBCEFStandard Deviationasb nizu

Asset B has the second-lowest predicted return of the four options left. Therefore, although it…

Answered: Q7. (7 points) The following graph…

EBK CFIN

6th Edition

ISBN:9781337671743

Author:BESLEY

Publisher:BESLEY

Chapter8: Risk And Rates Of Return

Section: Chapter Questions

Problem 5PROB

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Two assets have the following expected returns and standard deviations when the risk-free rate is 5%: Asset A E(rA) = 10% σA = 20% Asset B E(rB) = 15% σB = 27% An investor with a risk aversion of A = 3 would find that _________________ on a risk return basis. only Asset A is acceptable only Asset B is acceptable neither Asset A nor Asset B is acceptable both Asset A and Asset B are acceptable
Two assets have the following expected returns and standard deviations when the risk-free rate is 5%: Asset A E(rA) = 10% σA = 20% Asset B E(rB) = 15% σB = 27% An investor with a risk aversion of A = 3 would find that _________________ on a risk-return basis.
a) Commonwealth Bank of Australia (CBA) has reported a 99% Value at Risk (VaR) of 3.09% over a 1268 trading period. What does this mean? b) Why do some investors prefer to use Lower Partial Standard Deviations (LPSD) as compared to the standard deviation?
q5- Which of the following portfolios is most likely to provide the majority of the risk-reduction benefits of diversification without incurring excessive transaction costs? a. A portfolio consisting of 197 different shares. b. A portfolio consisting of 12 different shares. c. A portfolio consisting of 53 different shares. d. A portfolio consisting of 2 different shares.
Asset 1 has a standard deviation of returns of 0.15 while Asset 2 has a standard deviation of returns of 0.20. The correlation coefficient between the returns of the two assets is 0.34. Which of the following is closest to the covariance of the returns of the two assets if they are combined into an equally weighted portfolio? Group of answer choices 0.0129 0.0207 0.0102 0.1440
Security A offers an expected rate of return of 12% with a standard deviation of 18%, and security B offers an expected return of 6% with a standard deviation of 25%. Obviously, security B is inferior to security A with respect to both mean return and standard deviation. Assume investors are risk-averse, why would anyone hold security B?
Q1) The covariance between stocks A and B is 0.0014, standard deviation of stock A is 0.032, and standard deviation of stock B is 0.044. Which of the following is the most appropriate to depict the risk-return characteristics of a portfolio consisting of only stocks A and B, and explain why? (Image attached as Q)
Consider a position consisting of a K200,000 investment in Asset A and a K300,000 investment in Asset B. Assume that the daily volatilities of the assets are 1.5% and 1.8% respectively, and that the coefficient of correlation between their returns is 0.4. What is the five day 95% Value at Risk (VaR) for the portfolio (95% confidence level represents 1.65 standard deviations on the left side of a normal distribution)?
Q8. Which of the following statements are INCORRECT? I Beta measures non-diversifiable risk. II Market's beta is always 1. III When an asset's beta is more than 1, the asset's return should be more than 1%. IV Investors are only compensated for taking diversifiable risk. Group of answer choices 1. I and III 2. II and III 3. III and IV 4. I and II
Security A has an expected return of 12.4% with a standard deviation of 15%, and a correlation with the market of 0.85. Security B has an expected return of -0.73% with a standard deviation of 20%, and a correlation with the market of -0.67. The standard deviation of rM is 12%. a. To someone who acts in accordance with the CAPM, which security is more risky, A or B? Why? (Hint: No calculations are necessary to answer this question; it is easy.) b. What are the beta coefficients of A and B? Calculations are necessary. c. If the risk-free rate is 6%, what is the value of rM?
Which asset in the following table has the most market risk (also known as systematic or non- diversifiable risk)? Asset Return Beta Standard Deviation Asset A 11% 0.95 35% Asset B 13% 1.00 35% Asset C 9% 1.20 30% 1.) Asset C 2.) All three Assets 3.) Asset B 4.) Asset A and Asset B 5.) Asset A
Which asset in the following table has the most market risk (also known as systematic or non-diversifiable risk)? (Ch. 8) Asset Return Beta Standard Deviation Asset A 9% 0.95 20% Asset B 13% 1.10 35% Asset C 10% 1.00 40% Group of answer choices Asset A Asset C Asset B and Asset C Asset B

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