Three portfolios have the following expected returns and risk: Portfollo Jones Kelly Lewis Expected return 4% 6% 7% Standard deviation 2% 5% 8% A risk-averse investor choosing from these portfolios would not rationally select: Multiple Choice Lewis Any of the portfolios could be chosen. О Jones О Kelly

Three portfolios have the following expected returns and risk: Portfollo Jones Kelly Lewis Expected return 4% 6% 7% Standard deviation 2% 5% 8% A risk-averse investor choosing from these portfolios would not rationally select: Multiple Choice Lewis Any of the portfolios could be chosen. О Jones О Kelly

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter8: Analysis Of Risk And Return

Section: Chapter Questions

Problem 13QTD

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a) Calculate the expected return and standard deviation for the following portfolios: i) All in Zii) 0.75inZand0.25inY iii) 0.5 in Z and 0.5 in Y iv) 0.25 in Z and 0.75 in Y v) All in Y b) Draw the mean-standard deviation frontier. c) Which portfolios might not be held by an investor who likes high expected return and low standard deviation?
An investor can design a risky portfolio based on two stocks, A and B. Stock A has an expected return of 17% and a standard deviation of return of 28%. Stock B has an expected return of 15% and a standard deviation of return of 15%. The correlation coefficient between the returns of A and B is 0.8. The risk-free rate of return is 3.2%. What is the expected return on the optimal risky portfolio? Note:- Do not provide handwritten solution. Maintain accuracy and quality in your answer. Take care of plagiarism. Answer completely. You will get up vote for sure.
You are faced with two portfolios which you have been asked to rank in terms of selectivity. You have the following information: Risk-free rate is 4% Return on the market portfolio is 8% Return on portfolio A is 17% Return on portfolio B is 16% Actual beta of Portfolio A is 1.2, while target beta is 1 Actual beta of Portfolio B 1.0, while target beta is 0.9 Standard deviation of Portfolio A is 17% Standard deviation of Portfolio B 15% Standard deviation of the market portfolio is 7% Using Fama Decomposition, calculate the following for each portfolio: a) Return from Investor's risk b) Return from Manager's risk c) Return from Diversification d) Return from Net Selectivity e) Rank the performance of both portfolios based on return from selectivity and comment on your results
You are evaluating various investment opportunities currently available and you have calculated expected returns and standard deviations for five different well-diversified portfolios of risky assets:Portfolio Expected Return Standard DeviationQ 7.8% 10.5%R 10.0 14.0S 4.6 5.0T 11.7 18.5U 6.2 7.5a. For each portfolio, calculate the risk premium per unit of risk that you expect to receive ([E(R) − RFR]/σ). Assume that the risk-free rate is 3.0 percent.b. Using your computations in Part a, explain which of these five portfolios is most likely tobe the market portfolio. Use your calculations to draw the capital market line (CML).c. If you are only willing to make an investment with σ = 7.0%, is it possible for you toearn a return of 7.0 percent?d. What is the minimum level of risk that would be necessary for an investment to earn7.0 percent? What is the composition of the portfolio along the CML that will generatethat expected return?e. Suppose you are now willing to make an investment…
Which one of the following portfolios definitely cannot lie on the efficient frontier? Portfolio Expected return Standard deviation Q 9.0% 21.0% X 5.0% 7.0% W 15.0% 36.0% Z 10.0% 18.0% Select one: A. Only portfolio Q cannot lie on the efficient frontier. B. Only portfolio X cannot lie on the efficient frontier. C. Only portfolio W cannot lie on the efficient frontier. D. Cannot tell from the information given.
You are evaluating various investment opportunities currently available and you have calculated expected returns and standard deviations for five different well-diversified portfolios of risky assets. PORTFOLIO EXPECTED RETURN STANDARD DEVIATION Q 7.8% 10.5% R 10.0% 14.0% S 4.6% 5.0% T 11.7% 18.5% U 6.2% 7.5% a) For each portfolio, calculate the risk premium per unit of risk that you expect to receive [(E(R) –RFR)/ơ]. Assume that the risk free rate is 3.0%. b) Using…
Consider a T-bill with a rate of return of 5% and the following risky securities:Security A: E(r) = 0.15; Variance = 0.04Security B: E(r) = 0.10; Variance = 0.0225Security C: E(r) = 0.12; Variance = 0.01Security D: E(r) = 0.13; Variance = 0.0625From which set of portfolios, formed with the T-bill and any one of the four risky securities, would a risk-averse investor always choose his portfolio? A. Cannot be determined. B. The set of portfolios formed with the T-bill and security B. C. The set of portfolios formed with the T-bill and security C. D. The set of portfolios formed with the T-bill and security D. E. The set of portfolios formed with the T-bill and security A.
As a portfolio manager, you are required to take investment decision from the following two alternative scenarios: (Decision Criterion: Select a portfolio on relative risk basis) Scenario 1: Construct a portfolio with 60% investment in ICC: Expected Return (in %) Risk (as Std Div.) Covariance BPL 12 4 BPL & ICC: -1.2 ICC 7 2 Scenario 2: Construct equal weighted portfolios from following securities Expected Return (in %) Risk (as Std Div.) Covariance PSL 11 5 PSL & IPL: 3.75 IPL 8 3
You manage a risky portfolio with an expected rate of return of 19% and a standard deviation of 31%. The T-bill rate is 5%. Suppose that your client prefers to invest in your fund a proportion y that maximizes the expected return on the complete portfolio subject to the constraint that the complete portfolio’s standard deviation will not exceed 19%. a. What is the investment proportion, y? (Round your answer to 2 decimal places.) b. What is the expected rate of return on the complete portfolio? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
Use the following table for the next three questions: 1. An investment adviser bases his allocation on the Sharpe ratio. Assuming a risk-free rate of 1.5%, which portfolio is he most likelyto recommend? 2. The skewness of Portfolio 1 indicates its mean return is most likelyless than, equal or greater than the median? 3. Compared with a normal distribution, the distribution of returns forPortfolio 3 most likely is less peaked, have a greater number of extreme returns or have fewer small deviations from its mean?
You manage a risky portfolio with an expected rate of return of 19% and a standard deviation of 32%. The T-bill rate is 7%. Your client’s degree of risk aversion is A = 3.3, assuming a utility function U = E(r) - ½Aσ². a. What proportion, y, of the total investment should be invested in your fund? (Do not round intermediate calculations. Round your answer to 2 decimal places.) b. What is the expected value and standard deviation of the rate of return on your client’s optimized portfolio? (Do not round intermediate calculations. Round your answers to 2 decimal places.)
Which of the following portfolios should a risk averse investor choose? Portfolio Name σ(rP) Sharpe Ratio A 20% 0.45 B 25% 0.36 C 10% 0.27 D 15% 0.14 Portfolio D Portfolio A Portfolio C Portfolio B