Homework Answers
1. Sharpe ratio= (Expected return-Risk free Return)/standard deviation.
Answer: Asset A.
2. Answer: portfolio Z.
Explanation:
Portfolio Y provides more return (25%) for the less amount of risk
(10% ) thus making Z not lie on the efficient Frontier.
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Portfolio analvsis (8 points L3 points) Asset A has an expected return of 10% and a...
15. Which of the following statements is True? When creating a complete portfolio by a risky...
15. Which of the following statements is True? When creating a complete portfolio by a risky portfolio and a risk-free asset, a higher allocation to the risky portfolio increases the Sharpe ratio. The lower the risk-free rate, the lower the Sharpe ratios of levered portfolios. With a positive and fixed risk-free rate, doubling the expected return and standard deviation of the risky portfolio will double the Sharpe ratio. Holding constant the risk premium of the risky portfolio, a higher risk-free...
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...
Q7-Consider the following combination of expected return and risk for various portfolios (named A-H) on the...
Q7-Consider the following combination of expected return and risk for various portfolios (named A-H) on the risk-return diagram. Assume a risk-free rate of 12% where one may borrow or lend at this rate. Expected Return (%) Risk (%) A 10 23 B 12.5 21 C D E F G H 15 16 17 18 18 20 25 29 29 32 35 45 Sharpe Ratio 1. Which of the above portfolios has the highest Sharpe ratio? (Must express in percentage) (5pts.)...
You manage a risky portfolio with an expected return of 12% and a standard deviation of 24%. Assume that you can invest...
You manage a risky portfolio with an expected return of 12% and a standard deviation of 24%. Assume that you can invest and borrow at a risk-free rate of 3%, using T-bills. a. Draw the Capital Allocation Line (CAL) for this combination of risky portfolio and risk-free asset. What is the Sharpe ratio of the risky portfolio? b. Your client chooses to invest 50% of their funds into your risky portfolio and 50% risk-free. What is the expected return and...
4. Investor equilibrium The following graph shows the set of portfolio opportunities for a multiasset case....
4. Investor equilibrium The following graph shows the set of portfolio opportunities for a multiasset case. The point RF corresponds to a risk-free asset, the red curve BME is the efficient frontier, the shaded area under the efficient frontier represents the feasible set of portfolios of risky assets, and the yellow curves II and I2 are indifference curves for a particular investor. EXPECTED RATE OF RETURN (Percent) 10 RISK (Portfolio's standard deviation) The points on the line PRF MZ represent:...
Question 19 5 pts A risky fund has an expected return of 10% and standard deviation...
Question 19 5 pts A risky fund has an expected return of 10% and standard deviation of 18%. The risk-free rate is 6%. Arisk-averse investor having a risk aversion coefficient (A) equal to 3.5. is considering investing a portion of her retirement money in the risky fund with the remainder in cash. The Sharpe ratio of her optimal complete portfolio is: O 0.22 045 0.35 Can't tell from information provided. Need the return and risk of the optimal complete portfolio....
3. Which of the following statements are true? Please Explain. a. A lower allocation to the...
3. Which of the following statements are true? Please Explain. a. A lower allocation to the risky portfolio reduces the Sharpe (reward-to-volatility) ratio. b. The higher the borrowing rate, the lower the Sharpe ratios of levered portfolios. c. With a fixed risk-free rate, doubling the expected return and standard deviation of the risky portfolio will double the Sharpe ratio. d. Holding constant the risk premium of the risky portfolio, a higher risk-free rate will increase the Sharpe ratio of investments...
Suppose a risk-free asset has a 5 percent return and a second asset has an expected...
Suppose a risk-free asset has a 5 percent return and a second asset has an expected return of 13 percent with a standard deviation of 23 percent. A portfolio consisting 10 percent of the risk-free asset and 90 percent of the second asset. What is the Sharpe ratio of this portfolio?
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...
Which of the following is a TRUE statement? A The tangent portfolio is the risky portfolio...
Which of the following is a TRUE statement? A The tangent portfolio is the risky portfolio on the efficient frontier whose tangent line cuts the horizontal axis at the risk-free rate. B The new (or super) efficient frontier represents the portfolios composed of the risk-free rate and the tangent portfolio that offers the highest expected rate of return for any given level or risk. C The separation theorem states that the investment decision, (how to construct the portfolio of risky...
15. Which of the following statements is True? When creating a complete portfolio by a risky portfolio and a risk-free asset, a higher allocation to the risky portfolio increases the Sharpe ratio. The lower the risk-free rate, the lower the Sharpe ratios of levered portfolios. With a positive and fixed risk-free rate, doubling the expected return and standard deviation of the risky portfolio will double the Sharpe ratio. Holding constant the risk premium of the risky portfolio, a higher risk-free...
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...
Q7-Consider the following combination of expected return and risk for various portfolios (named A-H) on the risk-return diagram. Assume a risk-free rate of 12% where one may borrow or lend at this rate. Expected Return (%) Risk (%) A 10 23 B 12.5 21 C D E F G H 15 16 17 18 18 20 25 29 29 32 35 45 Sharpe Ratio 1. Which of the above portfolios has the highest Sharpe ratio? (Must express in percentage) (5pts.)...
4. Investor equilibrium The following graph shows the set of portfolio opportunities for a multiasset case. The point RF corresponds to a risk-free asset, the red curve BME is the efficient frontier, the shaded area under the efficient frontier represents the feasible set of portfolios of risky assets, and the yellow curves II and I2 are indifference curves for a particular investor. EXPECTED RATE OF RETURN (Percent) 10 RISK (Portfolio's standard deviation) The points on the line PRF MZ represent:...
Question 19 5 pts A risky fund has an expected return of 10% and standard deviation of 18%. The risk-free rate is 6%. Arisk-averse investor having a risk aversion coefficient (A) equal to 3.5. is considering investing a portion of her retirement money in the risky fund with the remainder in cash. The Sharpe ratio of her optimal complete portfolio is: O 0.22 045 0.35 Can't tell from information provided. Need the return and risk of the optimal complete portfolio....
3. Which of the following statements are true? Please Explain. a. A lower allocation to the risky portfolio reduces the Sharpe (reward-to-volatility) ratio. b. The higher the borrowing rate, the lower the Sharpe ratios of levered portfolios. c. With a fixed risk-free rate, doubling the expected return and standard deviation of the risky portfolio will double the Sharpe ratio. d. Holding constant the risk premium of the risky portfolio, a higher risk-free rate will increase the Sharpe ratio of investments...
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