Homework Answers
A.
Given,
risk aversion of the investor (A) = 4
standard deviation of portfolio (Sd) = 16%
Weight in the stock (W) = 1
weight of the risky portfolio formula:
W = (Rm - Rf)/A*Sd2
Rm - Rf = 1*0.04*16*16 = 10.24%
So, implied risk premium(Rm - Rf) = 10.24% (Answer)
B.
When A = 2
Implied risk premium (Rm - Rf) = 1*0.02*16*16 = 5.12% (Answer)
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D EAL 4. (20 pts) An investor has a risk aversion of 4. If she wants...
Please show work. An investor has a risk aversion of 4. If she wants to invest...
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An investor has a risk aversion of 4. If she wants to invest all her wealth in the stock market that has a standard deviation of 16%. What is the implied risk premium of the market? What is the market risk premium if she has a risk aversion of only 2?| T
dont use excel solve using any equations 1. An investor has a risk aversion of 4....
dont use excel
solve using any equations
1. An investor has a risk aversion of 4. If she wants to invest all her wealth in the stock market that has a standard deviation of 16%. What is the implied risk premium of the market? What is the market risk premium if she has a risk aversion of only 2? 2. There are two stocks: A and B, and Treasury Bill (TB). The parameters of these securities are following: Expected Return...
Please use the following formulas to answer the question: 4. An investor has a risk aversion...
Please use the following formulas to answer the question:
4. An investor has a risk aversion of 4. If she wants to invest all her wealth in the stock market that has a standard deviation of 16%. What is the implied risk premium of the market? What is the market risk premium if she has a risk aversion of only 2? 1. Arithmetic average stock returns .-= (+r)x(1+r)x.X(1+r)]š –1 = 19+r)*-1 2. Geometric average stock returns 3. APR versus EAR:...
11. Sophie is a highly risk-averse investor. She wants to invest in the following two stocks:...
11. Sophie is a highly risk-averse investor. She wants to invest in the following two stocks: stock A has expected return of 4% and standard deviation of 40%, stock B has expected return of 12% and standard deviation of 30%. The correlation coefficient between the two stocks is (-1), Sophie's friend advises her to invest 50% in stock A and 50% in stock B. Calculate and explain if you agree or disagree with the advice (7 points).
You are constructing a portfolio for an investor with a risk aversion of A=4. You can...
You are constructing a portfolio for an investor with a risk aversion of A=4. You can invest their money in a riskless asset with a return of 0.022, or a risky asset with an expected return of 0.124 and a standard deviation of 0.39. What proportion of their assets should you put in the risky asset? An answer of 0 means none of their assets, an answer of 1 means all of their assets.
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Mary has access to risky stocks A and B. But she has no access to risk-free T-bills. The two assets have the following characteristics: Stock A: Expected return= 12.5% per annum, Standard deviation=14% per annum Stock B: Expected return = 5% per annum. Standard deviation=8% per annum The correlation coefficient between retum on stock A and return on stock B is 0.10 Mary's utility function U = E(R)- Ao and her coefficient of risk aversion is equal to 3 a)...
Mary has access to risky stocks A and B. But she has no access to risk-free...
Mary has access to risky stocks A and B. But she has no access to risk-free T-bills. The two assets have the following characteristics: Stock A: Expected return= 12.5% per annum, Standard deviation=14% per annum Stock B: Expected return = 5% per annum. Standard deviation=8% per annum The correlation coefficient between retum on stock A and return on stock B is 0.10 Mary's utility function U = E(R)- Ao and her coefficient of risk aversion is equal to 3 a)...
Greta, an elderly investor, has a degree of risk aversion of A = 5 when applied...
Greta, an elderly investor, has a degree of risk
aversion of A = 5 when applied to return on wealth over a one-year
horizon. She is pondering two portfolios, the S&P 500 and a
hedge fund, as well as a number of one-year strategies. (All rates
are annual and continuously compounded.) The S&P 500 risk
premium is estimated at 5% per year, with a SD of 20%. The hedge
fund risk premium is estimated at 12% with a SD of...
Greta, an elderly investor, has a degree of risk aversion of A = 4 when applied...
Greta, an elderly investor, has a degree of risk aversion of A = 4 when applied to return on wealth over a one-year horizon. She is pondering two portfolios, the S&P 500 and a hedge fund, as well as a number of 4-year strategies. (All rates are annual, continuously compounded.) The S&P 500 risk premium is estimated at 7% per year, with a SD of 18%. The hedge fund risk premium is estimated at 5% with a SD of 25%....
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are annual and continuously compounded.) The S&P 500 risk
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Please show work.
An investor has a risk aversion of 4. If she wants to invest all her wealth in the stock market that has a standard deviation of 16%. What is the implied risk premium of the market? What is the market risk premium if she has a risk aversion of only 2?| T
dont use excel
solve using any equations
1. An investor has a risk aversion of 4. If she wants to invest all her wealth in the stock market that has a standard deviation of 16%. What is the implied risk premium of the market? What is the market risk premium if she has a risk aversion of only 2? 2. There are two stocks: A and B, and Treasury Bill (TB). The parameters of these securities are following: Expected Return...
Please use the following formulas to answer the question:
4. An investor has a risk aversion of 4. If she wants to invest all her wealth in the stock market that has a standard deviation of 16%. What is the implied risk premium of the market? What is the market risk premium if she has a risk aversion of only 2? 1. Arithmetic average stock returns .-= (+r)x(1+r)x.X(1+r)]š –1 = 19+r)*-1 2. Geometric average stock returns 3. APR versus EAR:...
11. Sophie is a highly risk-averse investor. She wants to invest in the following two stocks: stock A has expected return of 4% and standard deviation of 40%, stock B has expected return of 12% and standard deviation of 30%. The correlation coefficient between the two stocks is (-1), Sophie's friend advises her to invest 50% in stock A and 50% in stock B. Calculate and explain if you agree or disagree with the advice (7 points).
Mary has access to risky stocks A and B. But she has no access to risk-free T-bills. The two assets have the following characteristics: Stock A: Expected return= 12.5% per annum, Standard deviation=14% per annum Stock B: Expected return = 5% per annum. Standard deviation=8% per annum The correlation coefficient between retum on stock A and return on stock B is 0.10 Mary's utility function U = E(R)- Ao and her coefficient of risk aversion is equal to 3 a)...
Mary has access to risky stocks A and B. But she has no access to risk-free T-bills. The two assets have the following characteristics: Stock A: Expected return= 12.5% per annum, Standard deviation=14% per annum Stock B: Expected return = 5% per annum. Standard deviation=8% per annum The correlation coefficient between retum on stock A and return on stock B is 0.10 Mary's utility function U = E(R)- Ao and her coefficient of risk aversion is equal to 3 a)...
Greta, an elderly investor, has a degree of risk
aversion of A = 5 when applied to return on wealth over a one-year
horizon. She is pondering two portfolios, the S&P 500 and a
hedge fund, as well as a number of one-year strategies. (All rates
are annual and continuously compounded.) The S&P 500 risk
premium is estimated at 5% per year, with a SD of 20%. The hedge
fund risk premium is estimated at 12% with a SD of...
Greta, an elderly investor, has a degree of risk aversion of A = 4 when applied to return on wealth over a one-year horizon. She is pondering two portfolios, the S&P 500 and a hedge fund, as well as a number of 4-year strategies. (All rates are annual, continuously compounded.) The S&P 500 risk premium is estimated at 7% per year, with a SD of 18%. The hedge fund risk premium is estimated at 5% with a SD of 25%....
Greta, an elderly investor, has a degree of risk
aversion of A = 3 when applied to return on wealth over a one-year
horizon. She is pondering two portfolios, the S&P 500 and a
hedge fund, as well as a number of one-year strategies. (All rates
are annual and continuously compounded.) The S&P 500 risk
premium is estimated at 8.4% per year, with a SD of 23.4%. The
hedge fund risk premium is estimated at 13.4% with a SD of...
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