EBK ESSENTIALS OF INVESTMENTS
EBK ESSENTIALS OF INVESTMENTS
10th Edition
ISBN: 8220102800267
Author: Bodie
Publisher: YUZU
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Chapter 5, Problem 13PS

For Problems 12-16, assume that you manage a risky portfolio with an expected rate of return of 17% and a standard deviation of 27%. The T-bill rate is 7%.
13. Suppose the same client in the previous problem decides to invest in your risky portfolio
a proportion (y) of his total investment budget so that his overall portfolio will have an expected rate of return of 15%. (LO 53)
a. What is the proportion y?
b. What are your client’s investment proportions in your three stocks and in T-bills?
e. What is the standard deviation of the rate of return on your client’s portfolio?

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Consider the following information about a risky portfolio that you manage and a risk-free asset: E(rp) = 9%, Op = 24%, rf = 2%. Required: a. Your client wants to invest a proportion of her total investment budget in your risky fund to provide an expected rate of return on her overall or complete portfolio equal to 8%. What proportion should she invest in the risky portfolio, P, and what proportion in the risk-free asset? b. What will be the standard deviation of the rate of return on her portfolio? c. Another client wants the highest return possible subject to the constraint that you limit his standard deviation to be no more than 12%. Which client is more risk averse?
Consider the following information about a risky portfolio that you manage and a risk-free asset: E(rp) = 8%, op = 15%, rf = 2%. Required: a. Your client wants to invest a proportion of her total investment budget in your risky fund to provide an expected rate of return on her overall or complete portfolio equal to 8%. What proportion should she invest in the risky portfolio, P, and what proportion in the risk-free asset? b. What will be the standard deviation of the rate of return on her portfolio? c. Another client wants the highest return possible subject to the constraint that you limit his standard deviation to be no more than 12%. Which client is more risk averse? Complete this question by entering your answers in the tabs below. Required A Required B Required C Risky portfolio Risk-free asset Answer is complete but not entirely correct. Your client wants to invest a proportion of her total investment budget in your risky fund to provide an expected rate of return on her overall…
Consider the following information about a risky portfolio that you manage and a risk-free asset: E(rp) = 16%, Op = 26%, rf = 4%. a. Your client wants to invest a proportion of her total investment budget in your risky fund to provide an expected rate of return on her overall or complete portfolio equal to 6%. What proportion should she invest in the risky portfolio, P, and what proportion in the risk- free asset? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Risky portfolio Risk-free asset b. What will be the standard deviation of the rate of return on her portfolio? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Standard deviation % % O First client O Second client % c. Another client wants the highest return possible subject to the constraint that you limit his standard deviation to be no more than 12%. Which client is more risk averse?

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EBK ESSENTIALS OF INVESTMENTS

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