INVESTMENTS (LOOSELEAF) W/CONNECT
11th Edition
ISBN: 9781260465945
Author: Bodie
Publisher: MCG
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Chapter 7, Problem 16PS
Summary Introduction
To calculate: Expected return of portfolio.
Introduction: Expected return is the expected value of the probable distribution of
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Suppose that you have $1 million and the following two opportunities from which to construct a portfolio:a. Risk-free asset earning 12% per year.b. Risky asset with expected return of 30% per year and standard deviation of 40%.If you construct a portfolio with a standard deviation of 30%, what is its expected rate of return?
Suppose you have $2,000 to invest. The market portfolio has an expected return of 10.5 percent and a standard deviation of 16 percent. The risk-free rate is 3.75 percent.
How much should you invest in the risk-free asset if you wish to have a 15 percent return on the portfolio?
You are considering investing $10,000 in a risky portfolio. The value of
the risky portfolio in a year can be one of the following four scenarios.
State probability Portfolio values
Best 10% $13,000Good 30%. $11,000Average 40%. $10,500Recess. 20% $8,000
a) Your power utility function has a gamma value of 2. Find your certainty equivalent of the risky investment.
b) If you have an opportunity to invest in the risk-free asset yielding a continuously compounding annual rate of 9%, determine your investment choice between the above risky portfolio or the risk-free asset. You must explain why.
Chapter 7 Solutions
INVESTMENTS (LOOSELEAF) W/CONNECT
Ch. 7 - Prob. 1PSCh. 7 - Prob. 2PSCh. 7 - Prob. 3PSCh. 7 - Prob. 4PSCh. 7 - Prob. 5PSCh. 7 - Prob. 6PSCh. 7 - Prob. 7PSCh. 7 - Prob. 8PSCh. 7 - Prob. 9PSCh. 7 - Prob. 10PS
Ch. 7 - Prob. 11PSCh. 7 - Prob. 12PSCh. 7 - Prob. 13PSCh. 7 - Prob. 14PSCh. 7 - Prob. 15PSCh. 7 - Prob. 16PSCh. 7 - Prob. 17PSCh. 7 - Prob. 18PSCh. 7 - Prob. 19PSCh. 7 - Prob. 20PSCh. 7 - Prob. 21PSCh. 7 - Prob. 22PSCh. 7 - Prob. 23PSCh. 7 - Prob. 1CPCh. 7 - Prob. 2CPCh. 7 - Prob. 3CPCh. 7 - Prob. 4CPCh. 7 - Prob. 5CPCh. 7 - Prob. 6CPCh. 7 - Prob. 7CPCh. 7 - Prob. 8CPCh. 7 - Prob. 9CPCh. 7 - Prob. 10CPCh. 7 - Prob. 11CPCh. 7 - Prob. 12CPCh. 7 - Prob. 13CP
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