You are evaluating various investment opportunities currently available and you have calculated expected returns and standard deviation for five different well-diversified portfolios of risky assets. Portfolio Expected return (%) Standard deviation (%) Q 7.8 10.5 R 10 14 S 4.6 5 11.7 18.5 6.2 7.5 a. For each portfolio, determine the Sharpe ratio. Assume that the risk free rate is 3%. b. Using your analysis in part (a), explain which of these five portfolios is most likely to be the market portfolio. Draw up the Capital Market Line Equation. c. If you are willing to make an investment with a standard deviation of 7%, is it possible for you to earn 7%? d. What is the minimum risk level that would be necessary for an investment to earn 7%. What is the composition of the portfolio along the CML that will generate the 7% return. e. Suppose you are now willing t f. Devise how would you apply portfolio performance evaluation and attribution analysis in practice. Illustrate with suitable example. make an investment with a standard deviation of 18.2%. Determine what would be the investment proportions in the risk free asset and market portfolio? Determine the expected return for this portfolio.
You are evaluating various investment opportunities currently available and you have calculated expected returns and standard deviation for five different well-diversified portfolios of risky assets. Portfolio Expected return (%) Standard deviation (%) Q 7.8 10.5 R 10 14 S 4.6 5 11.7 18.5 6.2 7.5 a. For each portfolio, determine the Sharpe ratio. Assume that the risk free rate is 3%. b. Using your analysis in part (a), explain which of these five portfolios is most likely to be the market portfolio. Draw up the Capital Market Line Equation. c. If you are willing to make an investment with a standard deviation of 7%, is it possible for you to earn 7%? d. What is the minimum risk level that would be necessary for an investment to earn 7%. What is the composition of the portfolio along the CML that will generate the 7% return. e. Suppose you are now willing t f. Devise how would you apply portfolio performance evaluation and attribution analysis in practice. Illustrate with suitable example. make an investment with a standard deviation of 18.2%. Determine what would be the investment proportions in the risk free asset and market portfolio? Determine the expected return for this portfolio.
Chapter8: Analysis Of Risk And Return
Section: Chapter Questions
Problem 5P
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