Suppose that there are two assets: A and B. Asset A has expected return of 20% and standarddeviation of o* and Asset B has expected retum of 12% and standard deviation of o*.ExpectedReturn (E(R))A20%В12%StandardDeviation (0)Evaluate the following statements independently:(a) “As B is strictly dominated by A in terms of total risk (standard deviation), there is no value inhaving B in portfolio formation." (Without doing any calculation) [….•

A well-maintained portfolio is required for an investor's success. The asset allocation should be…

Answered: Suppose that there are two assets: A…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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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.
Assume that the short-term risk-freerate is 3%, the market index S&P500 is expected to pay returns of 15% with the standard deviation equal to 20%. Asset A pays on average 5%, has standard deviation equal to 20% and is NOTcorrelated with the S&P500. Asset B pays on average 8%, also has standard deviation equal to 20% and has correlationof 0.5 with the S&P500. Determine whether asset A and B are overvalued or undervalued, and explain why. (Hint: Beta of asset i (??)=???????, where ??,??are standard deviations of asset i and market portfolio, ???is the correlation between asset i and the market portfolio)
Assume that the short-term risk-free rate is 3%, the market index S&P500 is expected to pay returns of 15% with the standard deviation equal to 20%. Asset A pays on average 5%, has standard deviation equal to 20% and is NOT correlated with the S&P500. Asset B pays on average 8%, also has standard deviation equal to 20% and has correlation of 0.5 with the S&P500. Determine whether asset A and B are overvalued or undervalued and explain why. (Hint: Beta of asset i ( , where are standard deviations of asset i and market portfolio, is the correlation between asset i and the market portfolio) Thank You
Assume that the short-term risk-free rate is 3%, the market index S&P500 is expected to pay returns of 15% with the standard deviation equal to 20%. Asset A pays on average 5%, has a standard deviation equal to 20%, and is NOT correlated with the S&P500. Asset B pays on average 8%, also has a standard deviation equal to 20%, and has a correlation of 0.5 with the S&P500. Determine whether asset A and B are overvalued or undervalued, and explain why? the hint is given in image inserted...
Assume that the short-term risk-free rate is 6%, the market index S&P500 is expected to pay returns of 30% with the standard deviation equal to 40%. Asset A pays on average 10%, has a standard deviation equal to 40% and is NOT correlated with the S&P500. Asset B pays on average 16%, also has a standard deviation equal to 40% and has a correlation of 1 with the S&P500. Determine whether asset A and B are overvalued or undervalued, and explain why. (Beta of asset i (?i) = ?i ?iM / ?M, where ?i, ?M are standard deviations of asset i and market portfolio, ?iM is the correlation between asset i and the market portfolio)
Assume that the short-term risk-free rate is 3%, the market index S&P500 is expected to pay returns of 15% with the standard deviation equal to 20%. Asset A pays on average 5%, has standard deviation equal to 20% and is NOT correlated with the S&P500. Asset B pays on average 8%, also has standard deviation equal to 20% and has correlationof 0.5 with the S&P500. Determine whether asset A and B are overvalued or undervalued, and explain why
Assume that the short-term risk-free rate is 3%, the market index S&P500 is expected to payreturns of 15% with the standard deviation equal to 20%. Asset A pays on average 5%, has standarddeviation equal to 20% and is NOT correlated with the S&P500. Asset B pays on average 8%, also hasstandard deviation equal to 20% and has correlation of 0.5 with the S&P500. Determine whetherasset A and B are overvalued or undervalued, and explain why
assume that risk free rate, RF, is currently 8%, the market return, 1m, is 12%, and asset a beta ba, is 1.10. (a) Draw the SML on a set of "non-diversifiable risk Please sent me complete this question for further reliance.
Assets A and B have identical betas and standard deviations equal to 0% and 10%, respectively. Which one of the following statements is false? Asset A is a risk-free asset The beta of asset B is equal to zero The two assets have the same expected return Asset B carries both diversifiable risk and systemic risk
Assuming that the rates of return associated with a given asset investment are normally distributed; that the expected return, r, is 18.7%; and that the coefficient of variation, CV, is 1.88, answer the following questions: a. Find the standard deviation of returns, sigma Subscript rσr. b. Calculate the range of expected return outcomes associated with the following probabilities of occurrence: (1) 68%, (2) 95%, (3) 99%.
Expected returns and standard deviations of three risky assets are as follows: Expected Return Standard Deviations Correlations A B C A 11% 30% 1.0 0.3 0.15 B 14.5% 45% 0.3 1.0 0.45 C 9% 30% 0.15 0.45 1.0 3. Assume a portfolio of asset B and C. Determine the weight in asset B, such that the total portfolio risk is minimized.

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