Homework Answers
Q1) B) A portfolio that combines the risk free asset with a portfolio of risky assets.
explanation: Any point on Capital market line is a combination of risk free asset and risky asset or portfolio.
Q2) The capital market line
explanation: CML is the line connecting risk free asset with market portfolio. In this case Rrf is risk free rate and M is the market portfolio
Q3) D) 22.5%
explanation:
Expected return= Risk free rate + (market return - risk free rate) × standard deviation of portfolio / standard deviation of market
= 15% + (20% - 15%) × 0.15/0.10
= 15% + (5%) 1.5
= 15% + 7.5%
= 22.5%
Q4) Lower
explanation: A portfolio with low risk will have lower return. This is due to the direct relationship between risk and return. As one increases other also increases and vice versa.
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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....
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:...
The following graph shows the set of portfolio opportunities for a multiasset case. The point rrr...
The following graph shows the set of portfolio opportunities for a multiasset case. The point rrr 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 I and I 2 are indifference curves for a particular investor. EXPECTED RATE OF RETURN Percent) RISK IPortfolio's standard deviation The points on the line PREMZ represent: Portfolios that are dominated...
The efficient set of portfolios The following graph represents the relationship between the efficient set of...
The efficient set of portfolios The following graph represents the relationship between the efficient set of possible portfolios and various investors. Assuming that the black line represents the efficient frontier, which of the following best describes portfolios that lie to the left of this line? ___Indifferent ___Unattainable ___Efficient ___Inefficient On the preceding graph, the green and blue lines represent the indifference curves of two investors, investor Green and investor Blue. Which of these investors is more risk averse? ___Not enough...
please answer The following graph represents the relationship between the efficient set of possible portfolios and...
please answer
The following graph represents the relationship between the efficient set of possible portfolios and various investors EXPECTED RATE OF RETURN (Percent) 10 Investor Green Investor Blue Efficient Frontier 10 RISK (Portfolio's standard deviation) Assuming that the black line represents the efficient frontier, which of the following best describes portfolios that lie to the right of this ine? On the preceding graph, the green and blue lines represent the indifference curves of two investors, investor Green and investor Blue....
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...
1. Consider an investor with $1 of wealth. He has to compose a portfolio with the...
1. Consider an investor with $1 of wealth. He has to compose a portfolio with the following two risky assets. The rates of returns from those assets are specified by expectations, variances and correlations. var[r 1] = 0.02 E[r 1] = 0.05 var[r 2] = 0.03 E[r 2] = 0.08 corr[r 1, r 2] = 0.7 (a) Draw an efficient frontier of the investor. (b) How will the mean-variance efficient frontier in (a) change if corr[r 1, r 2] =...
Give me a complete explanation of portfolio diversification. GRAPHS must be a major part of your...
Give me a complete explanation of portfolio diversification. GRAPHS must be a major part of your explanation. Be sure to explain what each graph is showing! Start with the simple two-asset case and move to the more complex multi-asset case with the efficient frontier, the effect of the risk free rate on investor choices, the investor’s indifference curve, and why all investors should end up choosing the market portfolio as the risky part of their portfolio.
(Note: select all correct answers) The optimal risky portfolio can be identified by finding the minimum...
(Note: select all correct answers) The optimal risky portfolio can be identified by finding the minimum variance point on the efficient frontier the maximum return point on the efficient frontier the tangency point of the capital market line and the efficient frontier the line with the steepest slope that connects the risk free rate to the efficient frontier
) What does the indifference curve represent? ii) What is CAL(P)? iii) What is the efficient...
) What does the indifference curve represent?
ii) What is CAL(P)?
iii) What is the efficient frontier of risky assets?
iv) Explain what the point C represents.
v) How can an investor access pointK?
(c) Outline and discuss three limitations of the CAPM.
(b) Consider the following graph: CAL(P) E(R) Indifference curve Efficient frontier of risky assets Optimal risky portfolio Expected return (%) Standard deviation (%)
Question 1 1 pts The combination of a risk-free asset and a portfolio on the efficient...
Question 1 1 pts The combination of a risk-free asset and a portfolio on the efficient frontier leads to the formation of a: security market line, which shows that investors will only prefer portfolios that lie on the top half of the minimum variance frontier capital market line, which shows that investors will invest in a combination of the riskless asset and the tangency portfolio capital market line, which shows that investors will invest all their money into the tangency...
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:...
The following graph shows the set of portfolio opportunities for a multiasset case. The point rrr 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 I and I 2 are indifference curves for a particular investor. EXPECTED RATE OF RETURN Percent) RISK IPortfolio's standard deviation The points on the line PREMZ represent: Portfolios that are dominated...
please answer
The following graph represents the relationship between the efficient set of possible portfolios and various investors EXPECTED RATE OF RETURN (Percent) 10 Investor Green Investor Blue Efficient Frontier 10 RISK (Portfolio's standard deviation) Assuming that the black line represents the efficient frontier, which of the following best describes portfolios that lie to the right of this ine? On the preceding graph, the green and blue lines represent the indifference curves of two investors, investor Green and investor Blue....
(Note: select all correct answers) The optimal risky portfolio can be identified by finding the minimum variance point on the efficient frontier the maximum return point on the efficient frontier the tangency point of the capital market line and the efficient frontier the line with the steepest slope that connects the risk free rate to the efficient frontier
) What does the indifference curve represent?
ii) What is CAL(P)?
iii) What is the efficient frontier of risky assets?
iv) Explain what the point C represents.
v) How can an investor access pointK?
(c) Outline and discuss three limitations of the CAPM.
(b) Consider the following graph: CAL(P) E(R) Indifference curve Efficient frontier of risky assets Optimal risky portfolio Expected return (%) Standard deviation (%)
Question 1 1 pts The combination of a risk-free asset and a portfolio on the efficient frontier leads to the formation of a: security market line, which shows that investors will only prefer portfolios that lie on the top half of the minimum variance frontier capital market line, which shows that investors will invest in a combination of the riskless asset and the tangency portfolio capital market line, which shows that investors will invest all their money into the tangency...
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