Question 3Suppose you hold a diversified portfolio consisting of a $7,500 investment in each of 20different common stocks. The portfolio beta is equal to 1.12. Now, suppose you have decidedto sell one of the stocks in your portfolio with a beta equal to 1.0 for 7,500 and to use theseproceeds to buy another stocks for your portfolio. Assume the new stock's beta to 1.75.Calculate your portfolio's new beta.

here we can calculate portfolio's new beta by following method

Answered: Question 3 Suppose you hold a…

Brief Principles of Macroeconomics (MindTap Course List)

8th Edition

ISBN:9781337091985

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter9: The Basic Tools Of Finance

Section: Chapter Questions

Problem 6CQQ

See similar textbooks

Similar questions

What are some reasons why the investment strategy of a 30-year-old might differ flow the investment strategy of a 65-year-old?
Explain why a financial investor in stocks cannot earn high capital gains simply by buying companies with a demonstrated record of high profits.
INV 1 5ai Suppose that you have the following utility function: U=E(r) – ½ Aσ2 and A=3 Suppose that you have $10 million to invest for one year and you want to invest that money into ETFs tracking the S&P 500 (US) and S&P/TSX 60 (Canada) index, which are often used as proxies for the US and Canadian stock markets, respectively, and the Canadian one-year T-bill. Assume that the interest rate of the one-year T-bill is 0.35% per annum. You have found two ETFs that you are interested in. From a set of their historical data between 2001 and 2019, you have estimated the annual expected returns, standard deviations, and covariance as follows: ETFUS : E(r)= 0.070584 standard deviation = 0.173687 ETFCDA : E(r)= 0.073763 standard deviation = 0.16816 Covariance between ETFUS and ETFCDA = 0.02397 What is the portfolio expected return for ETFUS?
ANSWER E PLEASE ONLY Consider the following portfolio choice problem. The investor has initial wealth w andutility u(x) = (x^n) / n. There is a safe asset (such as a US government bond) that has netreal return of zero. There is also a risky asset with a random net return that has onlytwo possible returns, R1 with probability 1 − q and R0 with probability q. We assumeR1 < 0, R0 > 0. Let A be the amount invested in the risky asset, so that w − A isinvested in the safe asset.a) What are risk preferences of this investor, are they risk-averse, riskneutral or risk-loving?b) Find A as a function of w. c) Does the investor put more or less of his portfolio into the risky assetas his wealth increases? d) Now find the share of wealth, α, invested in the risky asset. How doesα change with wealth? e) Calculate relative risk aversion for this investor. How does relativerisk aversion depend on wealth?
The value of Jon’s stock portfolio is given by the function v(t) = 50 + 77t + 3t2, where v is the value of the portfolio in hundreds of dollars and t is the time in months. How much money did Jon start with? (y-intercept) What is the minimum value of Jon’s portfolio? (vertex)
After careful analysis, you have determined that a firm’s dividends should grow at 15%, on average, in the foreseeable future. The firm’s last dividend was $1.5. Compute the current price of this stock, assuming the required return is 20%
Consider the expected return and standard deviation of the following two assets: Asset 1: E[r1]=0.1 and s1=0.2 Asset 2: E[r2]=0.3 and s2=0.4 (a) Draw (e.g. with Excel) the set of achievable portfolios in mean-standard deviation space for the cases: (i) r12=-1, (ii) r12=0. (b) Suppose r12=-1. Which portfolio has the minimal variance? What is the variance and expected return of that portfolio? (c) Derive the formula for the variance of a portfolio with four assets.
Consider the following portfolio choice problem. The investor has initial wealth w andutility u(x) = (x^n) /n. There is a safe asset (such as a US government bond) that has netreal return of zero. There is also a risky asset with a random net return that has onlytwo possible returns, R1 with probability 1 − q and R0 with probability q. We assumeR1 < 0, R0 > 0. Let A be the amount invested in the risky asset, so that w − A isinvested in the safe asset.a) What are risk preferences of this investor, are they risk-averse, riskneutral or risk-loving?b) Find A as a function of w.
Consider the following portfolio choice problem. The investor has initial wealth w andutility u(x) = (x^n) /n. There is a safe asset (such as a US government bond) that has netreal return of zero. There is also a risky asset with a random net return that has onlytwo possible returns, R1 with probability 1 − q and R0 with probability q. We assumeR1 < 0, R0 > 0. Let A be the amount invested in the risky asset, so that w − A isinvested in the safe asset.1) What are risk preferences of this investor, are they risk-averse, riskneutral or risk-loving?2) Find A as a function of w.
Consider the following portfolio choice problem. The investor has initial wealth w andutility u(x) = (x^n) /n. There is a safe asset (such as a US government bond) that has netreal return of zero. There is also a risky asset with a random net return that has onlytwo possible returns, R1 with probability 1 − q and R0 with probability q. We assumeR1 < 0, R0 > 0. Let A be the amount invested in the risky asset, so that w − A isinvested in the safe asset. Calculate relative risk aversion for this investor. How does relative risk aversion depend on wealth?
INV 1 5aiv Suppose that you have the following utility function: U=E(r) – ½ Aσ2 and A=3 Suppose that you have $10 million to invest for one year and you want to invest that money into ETFs tracking the S&P 500 (US) and S&P/TSX 60 (Canada) index, which are often used as proxies for the US and Canadian stock markets, respectively, and the Canadian one-year T-bill. Assume that the interest rate of the one-year T-bill is 0.35% per annum. You have found two ETFs that you are interested in. From a set of their historical data between 2001 and 2019, you have estimated the annual expected returns, standard deviations, and covariance as follows: ETFUS : E(r)= 0.070584 standard deviation = 0.173687 ETFCDA : E(r)= 0.073763 standard deviation = 0.16816 Covariance between ETFUS and ETFCDA = 0.02397 What is the standard deviation for ETFCDA?
ANSWER C AND D PLEASE ONLY Consider the following portfolio choice problem. The investor has initial wealth w andutility u(x) = (x^n) / n. There is a safe asset (such as a US government bond) that has netreal return of zero. There is also a risky asset with a random net return that has onlytwo possible returns, R1 with probability 1 − q and R0 with probability q. We assumeR1 < 0, R0 > 0. Let A be the amount invested in the risky asset, so that w − A isinvested in the safe asset.a) What are risk preferences of this investor, are they risk-averse, riskneutral or risk-loving?b) Find A as a function of w. c) Does the investor put more or less of his portfolio into the risky assetas his wealth increases? d) Now find the share of wealth, α, invested in the risky asset. How doesα change with wealth?

SEE MORE QUESTIONS

Recommended textbooks for you

Brief Principles of Macroeconomics (MindTap Cours…

Economics

ISBN:

9781337091985

Author:

N. Gregory Mankiw

Publisher:

Cengage Learning

Essentials of Economics (MindTap Course List)

Economics

ISBN:

9781337091992

Author:

N. Gregory Mankiw

Publisher:

Cengage Learning

Principles of Macroeconomics (MindTap Course List)

Economics

ISBN:

9781285165912

Author:

N. Gregory Mankiw

Publisher:

Cengage Learning

Brief Principles of Macroeconomics (MindTap Cours…

Economics

ISBN:

9781337091985

Author:

N. Gregory Mankiw

Publisher:

Cengage Learning

Essentials of Economics (MindTap Course List)

Economics

ISBN:

9781337091992

Author:

N. Gregory Mankiw

Publisher:

Cengage Learning

Principles of Macroeconomics (MindTap Course List)

Economics

ISBN:

9781285165912

Author:

N. Gregory Mankiw

Publisher:

Cengage Learning

Principles of Macroeconomics (MindTap Course List)

Economics

ISBN:

9781305971509

Author:

N. Gregory Mankiw

Publisher:

Cengage Learning

Economics:

Economics

ISBN:

9781285859460

Author:

BOYES, William

Publisher:

Cengage Learning

Principles of Economics 2e

Economics

ISBN:

9781947172364

Author:

Steven A. Greenlaw; David Shapiro

Publisher:

OpenStax

SEE MORE TEXTBOOKS