Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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Chapter 18, Problem 8PS

Based on current dividend yields and expected capital gains, the expected rates of return on portfolios A and B are 12 % and 16 % , respectively. The beta of A is 0. 7 , while that of B is 1 . 4 . The T-bill rate is currently 5 % , whereas the expected rate of return of the S&P 5 00 index is 13 % . The standard deviation of portfolio A is 12 % annually, that of B is 31 % , and that of the S&P 5 00 index is 18 % .
a. If you currently hold a market-index portfolio, would you choose to add either of these portfolios to your holdings? Explain.
b. If instead you e0u1d invest only in T-bills and one of these portfolios, which would you choose? LO 18 2

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