What will happen if two assets are earning the same expected return, but one is riskier...
What will happen if two assets are earning the same expected return, but one is riskier then the other
Homework Answers
How risky an investment in asset means how much the investment returns deviate from the expected return of the investment. The standard deviation is a statistic measure use to calculate this.
If two assets are earning same expected retrurn but one is riskier than other, then the investor should choose less riskier asset over more riskier asset for the investment.
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What will happen if two assets are earning the same expected
return, but one is riskier...
2. (Understanding optimal portfolio choice) Consider two risky assets, the expected return of asset one is...
2. (Understanding optimal portfolio choice) Consider two risky assets, the expected return of asset one is μ-0.1, the expected return of asset two is μ2-0.15, the risk or standard deviation of asset one is σ1-0.1, the risk or standard deviation of asset two is σ2-02. The two assets also happen to have zero correlation. An investor plans to build a portfolio by investing w of his investment to asset one and the rest of his investment to asset two. Calculate...
Consider two assets A and B. Each has the same expected return. Suppose that the variance...
Consider two assets A and B. Each has the same expected return. Suppose that the variance of the return on A is 49 and the variance of the return on asset B is 100. The returns on the two assets are correlated with a correlation coefficient of .4. If an investor wants to hold a portfolio of the two assets that has the smallest variance of its return, what fraction of the investor’s wealth should be in asset A? How...
Suppose there are three assets: A, B, and C. Asset A’s expected return and standard deviation are 1 percent and 1 percent. Asset B has the same expected return and standard deviation as Asset A. However, the correlation coefficient of Assets A and B is −0
Suppose there are three assets: A, B, and C. Asset A’s expected return and
standard deviation are 1 percent and 1 percent. Asset B has the same expected
return and standard deviation as Asset A. However, the correlation coefficient of
Assets A and B is −0.25. Asset C’s return is independent of the other two assets.
The expected return and standard deviation of Asset C are 0.5 percent and 1
percent.
(a) Find a portfolio of the three assets that...
what is the return in a recession for a portfolio of the two assets Use the...
what is the return in a recession for a portfolio of the two
assets
Use the following information to answer questions 1 through 3: Your portfolio is comprised of $8,000 in Barbie and $3,500 in Ken. State of Probability Returns if State Occurs Economy of State Recession Growth Barbie Ken 25% 75% -3% 7% 8% 2% 1. What is the return in a recession for a portfolio of the two assets? 2. What is the expected return for a portfolio...
a. What are the expected value and standard deviation for the rate of return on assets?...
a.
What are the expected value and standard deviation for the rate
of return on assets?
b.
What is the expected rate of growth under risk?
c.
What are the standard deviation (risk) and coefficient of
variation of the expected rate of growth?
3. Nancy and Dave currently have $700,000 in assets and $260,000 in liabilities. Their average cost of debt is fixed at 7%. Their consumption and tax rates are 40% and 30%, respectively. Taxes are based on returns...
One situation is riskier than another if it has A. a greater expected loss. B. a...
One situation is riskier than another if it has A. a greater expected loss. B. a lower uncertainty. C. a lower expected loss. D. no uncertainty.
You are considering the risk-return profile of two mutual funds for invastment. The relatively risky fund...
You are considering the risk-return profile of two mutual funds for invastment. The relatively risky fund promises an expected return of 11 1% with a standard deviation of 14.7%. The relatively less risky fund promises an tandard deviation of 4% and 6%, respectively Assume that the returns are approximately normally distributed a-1. Calculate the probability of earning a negative return for each fund (Round final answer to 4 decimal places.) Probability Riskier fund Less risky fund a-2. Which mutual fund...
Suppose that expected inflation rises by 8 percent at the same time that the yields on...
Suppose that expected inflation rises by 8 percent at the same time that the yields on money and on non-money assets both rise by 8 percent. What will happen to the demand for money? The expected real yields on money and on non-money assets (Click to select) and the demand for money ( (Click to select) What if ex cted inflation rose by only 7 percent? The expected real yields on money and on non-money assets both and the demand...
2 points OOOO Suppose a firm's expected return on equity is at the same level compared...
2 points OOOO Suppose a firm's expected return on equity is at the same level compared to the expected return on assets overall, which one of the following is correct? likelihood of financial distress is high. firm has no debt in its capital structure. expected return on debt exceeds the expected return on assets. firm has too much debt.
Two like charges are separated by some distance. Describe quantitatively what will happen to the force...
Two like charges are separated by some distance. Describe quantitatively what will happen to the force exerted by one charge on the other if one of the charges is replaced by a charge of the same magnitude but opposite sign. The force will become: the same magnitude but becomes attracting. not enough information to tell what will happen. twice as large. the same - no change at all. the same magnitude but becomes repelling.
2. (Understanding optimal portfolio choice) Consider two risky assets, the expected return of asset one is μ-0.1, the expected return of asset two is μ2-0.15, the risk or standard deviation of asset one is σ1-0.1, the risk or standard deviation of asset two is σ2-02. The two assets also happen to have zero correlation. An investor plans to build a portfolio by investing w of his investment to asset one and the rest of his investment to asset two. Calculate...
what is the return in a recession for a portfolio of the two
assets
Use the following information to answer questions 1 through 3: Your portfolio is comprised of $8,000 in Barbie and $3,500 in Ken. State of Probability Returns if State Occurs Economy of State Recession Growth Barbie Ken 25% 75% -3% 7% 8% 2% 1. What is the return in a recession for a portfolio of the two assets? 2. What is the expected return for a portfolio...
a.
What are the expected value and standard deviation for the rate
of return on assets?
b.
What is the expected rate of growth under risk?
c.
What are the standard deviation (risk) and coefficient of
variation of the expected rate of growth?
3. Nancy and Dave currently have $700,000 in assets and $260,000 in liabilities. Their average cost of debt is fixed at 7%. Their consumption and tax rates are 40% and 30%, respectively. Taxes are based on returns...
You are considering the risk-return profile of two mutual funds for invastment. The relatively risky fund promises an expected return of 11 1% with a standard deviation of 14.7%. The relatively less risky fund promises an tandard deviation of 4% and 6%, respectively Assume that the returns are approximately normally distributed a-1. Calculate the probability of earning a negative return for each fund (Round final answer to 4 decimal places.) Probability Riskier fund Less risky fund a-2. Which mutual fund...
Suppose that expected inflation rises by 8 percent at the same time that the yields on money and on non-money assets both rise by 8 percent. What will happen to the demand for money? The expected real yields on money and on non-money assets (Click to select) and the demand for money ( (Click to select) What if ex cted inflation rose by only 7 percent? The expected real yields on money and on non-money assets both and the demand...
2 points OOOO Suppose a firm's expected return on equity is at the same level compared to the expected return on assets overall, which one of the following is correct? likelihood of financial distress is high. firm has no debt in its capital structure. expected return on debt exceeds the expected return on assets. firm has too much debt.
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