EBK INVESTMENTS
11th Edition
ISBN: 9781259357480
Author: Bodie
Publisher: MCGRAW HILL BOOK COMPANY
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Question
Chapter 6, Problem 1PS
Summary Introduction
To select: The statement which completes the sentence that an investor with higher degree of risk aversion compared to the lower degree of aversion.
Introduction : The risk aversion investors are used to reduce the risk of the portfolios and it can also reduce the risk completely. The risk-aversion investors can avoid the default risk by selecting the government guarantee securities.
Expert Solution & Answer
Answer to Problem 1PS
The correct option is (e).
Explanation of Solution
Given information : The investor with higher degree of risk aversion is compared with lower degree of risk aversion.
The investments which has low standard deviation has low risk therefore investors includes the investments with the value of low standard deviation.
The analysis of the risk return −trade off is called as sharpe ratio but the investor with risk averse do not ready to take any kind of risk on their portfolio. Therefore sharpe ratio of the risky portfolios is low.
The rationale investor always required the high sharpe ratio for his portfolio and to obtain that he will chose only treasury bond and T-bills investments for investment alternatives.
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Students have asked these similar questions
Which of the following choices best completes the following statement? Explain. An investor with a higher degree of risk aversion, compared to one with a lower degree, will most prefer investment portfoliosa. with higher risk premiums.b. that are riskier (with higher standard deviations).c. with lower Sharpe ratios.d. with higher Sharpe ratios.
Given the indifference curves above, which of the following statements isCORRECT? A) The investor prefers portfolio A because it has a lower level of risk. B) The investor prefers portfolio B because it has the greatest expected return. C) The investor prefers portfolio E because it is on the indifference curve 2, which is higher than the indifference curve 1, where both portfolios A and B are situated. D) The investor does not prefer one portfolio from another as each portfolio lies on an indifferent curve.
Answer whether each of the following statements is correct and explain your argument. \
(a) According to CAPM, the expected return of a risky asset is larger than the risk free rate.
(b) According to CAPM, the expected return of a risky asset increases with its variance.
(c) According to the separation property, the optimal risky portfolio for an investor dependson the investor’s personal preference.
(d) A less risk-averse investor has a steeper indifference curve for the utility function.
Chapter 6 Solutions
EBK INVESTMENTS
Ch. 6.A - Prob. 1PCh. 6.A - Prob. 2PCh. 6 - Prob. 1PSCh. 6 - Prob. 2PSCh. 6 - Prob. 3PSCh. 6 - Prob. 4PSCh. 6 - Prob. 5PSCh. 6 - Prob. 6PSCh. 6 - Prob. 7PSCh. 6 - Prob. 8PS
Ch. 6 - Prob. 9PSCh. 6 - Prob. 10PSCh. 6 - Prob. 11PSCh. 6 - Prob. 12PSCh. 6 - Prob. 13PSCh. 6 - Prob. 14PSCh. 6 - Prob. 15PSCh. 6 - Prob. 16PSCh. 6 - Prob. 17PSCh. 6 - Prob. 18PSCh. 6 - Prob. 19PSCh. 6 - Prob. 20PSCh. 6 - Prob. 21PSCh. 6 - Prob. 22PSCh. 6 - Prob. 23PSCh. 6 - Prob. 24PSCh. 6 - Prob. 25PSCh. 6 - Prob. 26PSCh. 6 - Prob. 27PSCh. 6 - Prob. 28PSCh. 6 - Prob. 29PSCh. 6 - Prob. 1CPCh. 6 - Prob. 2CPCh. 6 - Prob. 3CPCh. 6 - Prob. 4CPCh. 6 - Prob. 5CPCh. 6 - Prob. 6CPCh. 6 - Prob. 7CPCh. 6 - Prob. 8CPCh. 6 - Prob. 9CP
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