Your client has a risk aversion of A=3 when applied to return on wealth over a 1 year horizon. She is looking at two portfolios: The S&P 500 with a Risk Premium of 8% and a standard Deviation of 20%. A Hedge Fund with a Risk Premium of 12% and a standard Deviation of 35% There is an annual correlation of .6200 Use this data for problems #12 -#16 Fund S&P 500 Hedge Correlation. Risk Aversion A B .6542 5390 Risk Premium .6390 0.0800 Given the risk aversion of 3.0, how much will she invest in the risky assets of the portfolio? Y* Expected Return on Portfolio/ (A*Variance of Portfolio) 0.1200 0.6200 3.00 STDEV 0.2000 0.3500

Your client has a risk aversion of A=3 when applied to return on wealth over a 1 year horizon. She is looking at two portfolios: The S&P 500 with a Risk Premium of 8% and a standard Deviation of 20%. A Hedge Fund with a Risk Premium of 12% and a standard Deviation of 35% There is an annual correlation of .6200 Use this data for problems #12 -#16 Fund S&P 500 Hedge Correlation. Risk Aversion A B .6542 5390 Risk Premium .6390 0.0800 Given the risk aversion of 3.0, how much will she invest in the risky assets of the portfolio? Y* Expected Return on Portfolio/ (A*Variance of Portfolio) 0.1200 0.6200 3.00 STDEV 0.2000 0.3500

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter8: Analysis Of Risk And Return

Section: Chapter Questions

Problem 13P

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