INVESTMENTS (LOOSELEAF) W/CONNECT
11th Edition
ISBN: 9781260465945
Author: Bodie
Publisher: MCG
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Chapter 9, Problem 9CP
Summary Introduction
To determine: The portfolio R lies on the capital market line
Introduction: The
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Which of the following statements is true regarding the optimal risky portfolio:
It is designated by the point of tangency with iso-utility curve and the capital allocation line.
It is designated by the point of highest Sharpe ratio in the opportunity set.
It is designed by the point of tangency with the opportunity set and the securities market line.
This portfolio gives the highest standard deviation risk per unit of risk premium in the opportunity set.
Consider the following performance data for a portfolio manager:
Benchmark
Portfolio
Index
Portfolio
Weight
Weight
Return
Return
Stocks
0.65
0.7
0.11
0.12
Bonds
0.3
0.25
0.07
0.08
Cash
0.05
0.05
0.03
0.025
a.Calculate the percentage return that can be attributed to the asset allocation decision.
b.Calculate the percentage return that can be attributed to the security selection decision.
The following portfolios are being considered for investment. During the period under consideration, RFR = 0.07.Portfolio Return Beta σiA 0.15 1.0 0.05B 0.20 1.5 0.10C 0.10 0.6 0.03D 0.17 1.1 0.06Market 0.13 1.0 0.04
a. Compute the Sharpe measure for each portfolio and the market portfolio.
b. Compute the Treynor measure for each portfolio and the market portfolio.
c. Rank the portfolios using each measure, explaining the cause for any differences you find in the rankings.
Chapter 9 Solutions
INVESTMENTS (LOOSELEAF) W/CONNECT
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