INVESTMENTS (LOOSELEAF) W/CONNECT
11th Edition
ISBN: 9781260465945
Author: Bodie
Publisher: MCG
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Chapter 7, Problem 3PS
Summary Introduction
To select: The correct statement about the minimum-variance portfolio about the risk securities is to be determined.
Introduction : The portfolio risk is defined as the combination of assets which carries its own risk with each investment.
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Which of the following statements about the minimum-variance portfolio of all risky securities is valid? (Assume short sales are allowed.) Explain.a. Its variance must be lower than those of all other securities or portfolios.b. Its expected return can be lower than the risk-free rate.c. It may be the optimal risky portfolio.d. It must include all individual securities.
Consider a T-bill with a rate of return of 5% and the following risky securities:Security A: E(r) = 0.15; Variance = 0.04Security B: E(r) = 0.10; Variance = 0.0225Security C: E(r) = 0.12; Variance = 0.01Security D: E(r) = 0.13; Variance = 0.0625From which set of portfolios, formed with the T-bill and any one of the four risky securities, would a risk-averse investor always choose his portfolio?
A. Cannot be determined.
B. The set of portfolios formed with the T-bill and security B.
C. The set of portfolios formed with the T-bill and security C.
D. The set of portfolios formed with the T-bill and security D.
E. The set of portfolios formed with the T-bill and security A.
Assume that two securities, A and B, constitute the market portfolio, their proportions and variances are 0.39, 160, and 0.61, 340, respectively. The covariance of the two securities is 190. Estimate the systematic risk (beta) of the two securities. Note that the covariance of security-i with the market portfolio is simply the weighted average of the covariances of security-i with all the securities included in the market portfolio – the lesson you learned in the context of the bordered covariance matrix.
Answer step by step.Do all part.Answer must be correct.
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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