Homework Answers
No, the portfolio with the highest Sharpe ratio may not be the best portfolio to meet your goals because the Sharpe ratio is inappropriate for choosing between different portfolios all of which lie on the efficient frontier. So, it may happen that there is a portfolio with a lower Sharpe ratio which lies on the efficient frontier.
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Question 8 [2 points) Investing all your wealth in the portfolio with the highest Sharpe Ratio...
Investing all your wealth in the portfolio with the highest Sharpe Ratio is the strategy that...
Investing all your wealth in the portfolio with the highest Sharpe Ratio is the strategy that will give you the best chance of meeting your goals. I. II. Yes No Why?
Portfolio analvsis (8 points L3 points) Asset A has an expected return of 10% and a...
Portfolio analvsis (8 points L3 points) Asset A has an expected return of 10% and a Sharpe ratio of 0.4. Asset B bas ans expectod retum of 15% and a Sharpe ratio of o3. Asset C has an expected return of 20% and a Sharpe ratio of 0.35. A risk-averse investor would prefer to build a complete portfolio using the risk free asset and a Asset A b. Asset B c Asset C d. No risky asset 2 (3 points)...
Assume you are considering investing your personal portfolio in only two possible risky assets: 60% invested...
Assume you are considering investing your personal portfolio in only two possible risky assets: 60% invested in Asset Y and the rest in Asset Z. The characteristics of these two risky assets are as follows: Asset Y has an Expected Return of 12% and a standard deviation of 15% Asset Z has an Expected Return of 9% and a standard deviation of 12% Correlation between the returns of Asset Y and Asset Z is 0.20 Find the Expected Return of...
5. Consider two perfectly negatively correlated risky securities A and B. Your portfolio is currently weighted...
5. Consider two perfectly negatively correlated risky securities A and B. Your portfolio is currently weighted with 50% in A and 50% in B. A has an expected rate of return of 10% and a standard deviation of 16%. B has an expected rate of return of 8% and a standard deviation of 12%. The risk-free rate is 3%. (a) (3 points) What are the variance and return for your portfolio? (b) (4 points) What weights would give you the...
You are comparing the performance of your portfolio against your benchmark over the last 8 years....
You are comparing the performance of your portfolio against your benchmark over the last 8 years. You have collected the following data: Year Portfolio Benchmark 1 12% 10% 2 6% 13% 3 10% 11% 4 11% 9% 5 16% 12% 6 14% 10% 7 8% 13% 8 18% 10% Assume that the risk-free rate over this period averaged 2%. Given this information, calculate the optimal levels of active risk and active return for your portfolio, along with the Sharpe ratio...
2. You are considering investing $1,000 in a complete portfolio. The complete portfolio is composed of...
2. You are considering investing $1,000 in a complete portfolio. The complete portfolio is composed of Treasury bills that pay 2% and a risky portfolio, P constructed with two risky securities, X and Y. The optimal weights of X and Y in P are 40% and 60%, respectively. X has an expected rate of return of 0.10 and variance of 0.0081, and Y has an expected rate of return of 0.06 and a variance of 0.0036. The coefficient of correlation,...
Show all of your work and answer all questions in Excel. The questions should look familiar....
Show all of your work and answer all questions in Excel. The questions should look familiar. Each question is 15 points. Historic Returns X returns Bret 1. Draw the opportunity set of securities X and B. Be sure to label the minimum-variance portfolio, the optimal portfolio, and the capital allocation line B returns T-Bills 4.15 -7 37 2. Find the optimal risky portfolio (O), its expected return, standard deviation, and Sharpe ratio. Compare with the Sharpe ratios of X and...
9. (Market portfolio, CML) In the Golkoland stock market, there are only two listed stocks, Xirkind...
9. (Market portfolio, CML) In the Golkoland stock market, there are only two listed stocks, Xirkind and Yirkind. The risk-free rate of return in Golkoland is 5%, and the portfolio of Xirkind and Yirkind stocks which has the highest Sharpe ratio is given below: A C 3 Average return 4 Variance of returns 5 Standard deviation 6 Covariance of returns 7 Correlation 8 Risk-free return B DE Xirkind Yirkind 19.84% 15.38% 0.1575 0.1378 39.68% 37.12% <-- SQRT(C4)! -0.0110 -0.0747 <--...
Er (%) 0.2 Consider the CAPM framework. Suppose that you currently have 40% of your wealth...
Er (%) 0.2 Consider the CAPM framework. Suppose that you currently have 40% of your wealth in Treasury Bills, risk-free, and 60% in the four assets below Asset i Bi Wi i = 1 8.5 0.2 0.1 i = 2 13.1 0.8 0.1 i = 3 16.6 1.2 0.2 i = 4 18.7 1.4 Let the four assets be traded in a market M with Erm = 15% and let the risk-free rate be rf = 4%, answer the following...
QUESTION 6 0.25 points Save Ans You are considering investing $1,000 in a complete portfolio. The...
QUESTION 6 0.25 points Save Ans You are considering investing $1,000 in a complete portfolio. The complete portfolio is composed of Treasury bills that pay 596 and a risky portfolio, P, constructed with two risky securities, X and Y. The optimal weights of X and Y in P are 60% and 4096 respectively. X has an expected rate of return of 1496, and Y has an expected rate of return of 10%. To form a complete portfolio with an expected...
Investing all your wealth in the portfolio with the highest Sharpe Ratio is the strategy that will give you the best chance of meeting your goals. I. II. Yes No Why?
Portfolio analvsis (8 points L3 points) Asset A has an expected return of 10% and a Sharpe ratio of 0.4. Asset B bas ans expectod retum of 15% and a Sharpe ratio of o3. Asset C has an expected return of 20% and a Sharpe ratio of 0.35. A risk-averse investor would prefer to build a complete portfolio using the risk free asset and a Asset A b. Asset B c Asset C d. No risky asset 2 (3 points)...
5. Consider two perfectly negatively correlated risky securities A and B. Your portfolio is currently weighted with 50% in A and 50% in B. A has an expected rate of return of 10% and a standard deviation of 16%. B has an expected rate of return of 8% and a standard deviation of 12%. The risk-free rate is 3%. (a) (3 points) What are the variance and return for your portfolio? (b) (4 points) What weights would give you the...
2. You are considering investing $1,000 in a complete portfolio. The complete portfolio is composed of Treasury bills that pay 2% and a risky portfolio, P constructed with two risky securities, X and Y. The optimal weights of X and Y in P are 40% and 60%, respectively. X has an expected rate of return of 0.10 and variance of 0.0081, and Y has an expected rate of return of 0.06 and a variance of 0.0036. The coefficient of correlation,...
Show all of your work and answer all questions in Excel. The questions should look familiar. Each question is 15 points. Historic Returns X returns Bret 1. Draw the opportunity set of securities X and B. Be sure to label the minimum-variance portfolio, the optimal portfolio, and the capital allocation line B returns T-Bills 4.15 -7 37 2. Find the optimal risky portfolio (O), its expected return, standard deviation, and Sharpe ratio. Compare with the Sharpe ratios of X and...
9. (Market portfolio, CML) In the Golkoland stock market, there are only two listed stocks, Xirkind and Yirkind. The risk-free rate of return in Golkoland is 5%, and the portfolio of Xirkind and Yirkind stocks which has the highest Sharpe ratio is given below: A C 3 Average return 4 Variance of returns 5 Standard deviation 6 Covariance of returns 7 Correlation 8 Risk-free return B DE Xirkind Yirkind 19.84% 15.38% 0.1575 0.1378 39.68% 37.12% <-- SQRT(C4)! -0.0110 -0.0747 <--...
Er (%) 0.2 Consider the CAPM framework. Suppose that you currently have 40% of your wealth in Treasury Bills, risk-free, and 60% in the four assets below Asset i Bi Wi i = 1 8.5 0.2 0.1 i = 2 13.1 0.8 0.1 i = 3 16.6 1.2 0.2 i = 4 18.7 1.4 Let the four assets be traded in a market M with Erm = 15% and let the risk-free rate be rf = 4%, answer the following...
QUESTION 6 0.25 points Save Ans You are considering investing $1,000 in a complete portfolio. The complete portfolio is composed of Treasury bills that pay 596 and a risky portfolio, P, constructed with two risky securities, X and Y. The optimal weights of X and Y in P are 60% and 4096 respectively. X has an expected rate of return of 1496, and Y has an expected rate of return of 10%. To form a complete portfolio with an expected...
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