Homework Answers
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
Optimal risky portfolio is not the minimum variance point or the maximum return point. It is the tangency point on the line from risk free rate to the efficient frontier
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(Note: select all correct answers) The optimal risky portfolio can be identified by finding the minimum...
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...
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...
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...
Given an optimal risky portfolio with an expected return of 0.09, standard deviation of 0.17, and...
Given an optimal risky portfolio with an expected return of 0.09, standard deviation of 0.17, and a risk-free rate of 0.03, what is the slope of the best feasible capital allocation line (CAL)?
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 Pre 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 11 and 12 are indifference curves for a particular investor. EXPECTED RATE OF RETURN (Percent) 10 RISK (Portfolio's standard deviation) Point A, where the line PRF MZ is...
3 Question 3 In a market are listed two risky assets whose returns are described by the following parameters...
3 Question 3 In a market are listed two risky assets whose returns are described by the following parameters HA=0.01. MB = 0.07, 01 = 0.2 and op = 0.12. The correlation among the securities is constant and equal to p=0.1. 1. Derive the equation for the frontier 2. Derive the minimum variance portfolio and the equation for the efficient frontier 3. Let's add a risk free asset among the possible investments with return r = 0.03 and derive the...
1. Which of the following statements is least likely to be correct? A. An investor's optimal...
1. Which of the following statements is least likely to be correct? A. An investor's optimal portfolio is an efficient portfolio that provides the highest level of utility. B. The optimal portfolio for an investor is at the point of tangency between the capital allocation line and the lowest possible utility. C. A risk averse investor will have an optimal portfolio to the left of the capital allocation line as compared to a less risk-averse investor. 2. Capital market line...
The expected return of the risky-asset portfolio with minimum variance is _________. -the market rate of...
The expected return of the risky-asset portfolio with minimum variance is _________. -the market rate of return -the risk-free rate -zero -The answer cannot be determined from the information given.
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...
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...
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 Pre 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 11 and 12 are indifference curves for a particular investor. EXPECTED RATE OF RETURN (Percent) 10 RISK (Portfolio's standard deviation) Point A, where the line PRF MZ is...
3 Question 3 In a market are listed two risky assets whose returns are described by the following parameters HA=0.01. MB = 0.07, 01 = 0.2 and op = 0.12. The correlation among the securities is constant and equal to p=0.1. 1. Derive the equation for the frontier 2. Derive the minimum variance portfolio and the equation for the efficient frontier 3. Let's add a risk free asset among the possible investments with return r = 0.03 and derive the...
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...
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