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2. Let Ri and R2 be the i.i.d. random rates of return on two assets (with...
Consider a market model with three scenarios and two risky assets with rates of return rı...
Consider a market model with three scenarios and two risky assets with rates of return rı and r2, respectively. Let the joint distribution of the rates is as follows: Probability 40% 40% 20% rı (Return on Asset 1) -2% 9% r2(Return on Asset 2) 3% 5% 8% 5% (a) Find the expected return u for each asset: Hi = E[rı] = % to 2 decimal places M2 = E[r2] = % to 2 decimal places (b) Find the risk o...
Exercise 2. Suppose that there is one risk free asset with return rf and one risky...
Exercise 2. Suppose that there is one risk free asset with return rf and one risky asset with normally distributed returns, r ~ N(u,02). Show that the CARA utility u(r) = -e-Ar gives the same optimal allocation of wealth to the risky asset as the mean-variance utility function we used in class. That is, show that E[r] – rf OCARA = AO2 Hint: Use the fact that if a random variable x is distributed normally with mean Mx and variance...
please help and show your work! Consider a market model with three assets: two risky assets...
please help and show your work!
Consider a market model with three assets: two risky assets (#1 and #2) and one risk-free asset (#3). The risk-free rate of interest is r = 3%. The parameters of the risky returns are as follows: 02 = 15%, Mi = 6%, H2 = 9%, 01 = 10%, P12 = -10%. 1. Let u(x) and g(x) with xe (-0,00) denote, respectively, the expected return and volatility of my portfolio if I allocate 100x% of...
Only Questions 4,5 and 6 a=5 Problem 1. Let (X1, ...., Xn) be an i.i.d random...
Only Questions 4,5 and 6
a=5
Problem 1. Let (X1, ...., Xn) be an i.i.d random sample with X; ~ U[0, 2a), and (Y1, ..., Yn) be an i.i.d random sample with Y; ~ Exp ( 1. Find E[X;], E[X3], E[Y/] and E[Y;?). 2. Notwithstanding the actual distributions of the random samples, suppose the modeller believes that they are i.i.d draws from a U (0, 2a distribution. Find the (simple) method of moments estimator â. 3. Let n = 1000....
Question 5 3 pts Consider two assets, A and B, with the following equally likely rates...
Question 5 3 pts Consider two assets, A and B, with the following equally likely rates of return: A will return either 3%, 6%, or 3.5%. B will return either 2.5%, 8%, or 7.5 Asset A Asset B 3.5% 7.5% 3.0% 6.0% 8.0% 2.5% Find the expected rates of return for assets A and B. Which asset would an investor, who cares only about expected return and risk and can choose only one or the other, prefer? A is better...
The return profiles of 2 assets are given below. What is the minimum risk, in terms...
The return profiles of 2 assets are given below. What is the minimum risk, in terms of standard deviation, that can be achieved with a portfolio that holds these two assets? The weight of the 2 assets must be positive and sum up to 1. That is, holding 0 of each and thus having 0 risk is not allowed. (Hint: let weight in asset A be w, and weight in asset B be 1-w. The standard deviation of the portfolio...
2. 3: Risk and Rates of Return: Risk in Portfolio Context Risk and Rates of Return:...
2. 3: Risk and Rates of Return: Risk in Portfolio Context Risk
and Rates of Return: Risk in Portfolio Context The capital asset
pricing model (CAPM) explains how risk should be considered when
stocks and other assets are held . The CAPM states that any stock's
required rate of return is the risk-free rate of return plus a risk
premium that reflects only the risk remaining diversification. Most
individuals hold stocks in portfolios. The risk of a stock held in...
1.3 (5 points) Two stocks have the following expected returns and standard deviations Stock Stock Expected...
1.3 (5 points) Two stocks have the following expected returns and standard deviations Stock Stock Expected return Standard Deviation A 10% 12% B 15% 20% Consider a portfolio of A and B, and let w, and wg denote the portfolio weights of these two assets, with W + W, =1. Suppose that the correlation between the expected returns on A and B is equal to 0.3. Use these data to construct the portfolio of A and B with the lowest...
Updated: Desperately needs help with question C and question D. This is all the information given...
Updated: Desperately needs help with question C
and question D. This is all the
information given for this exercise:
There are two assets, X and Y. Both are risky, and pay out only in the range 1, 0, 1.The agent has 1 unit of income and must exhaust his income on these two assets: he cannot hold cash. The price of both assets is 1. The joint distribution of the payoff of the two assets has the form -1 0...
Dropdown options: 1-risk/return 2-equal to/greater or less than 3-self contained/stand-alone 4-variance/standard deviation 5-variance/beta coefficient 6-diversifiable/non-diversiable 7-is/...
Dropdown options:
1-risk/return
2-equal to/greater or less than
3-self contained/stand-alone
4-variance/standard deviation
5-variance/beta coefficient
6-diversifiable/non-diversiable
7-is/ is not
8-diversifiable/non-diversifiable
9-random/non random
10-decreasing/increasing
11-2000+/500
12-reduces/increases
13-systematic of market/unsystematic or company-specific
14-diversifiable/non diversifiable
1. Basic concepts - Risk and return Professor Isadore (Izzy) Invest-a-Lot retired two years ago from Exceptional College, a small liberal arts college in North Carolina after teaching corporate finance and investment theory for 35 years. Yesterday, Izzy appear on EC LIVE, a television show produced for the students,...
Consider a market model with three scenarios and two risky assets with rates of return rı and r2, respectively. Let the joint distribution of the rates is as follows: Probability 40% 40% 20% rı (Return on Asset 1) -2% 9% r2(Return on Asset 2) 3% 5% 8% 5% (a) Find the expected return u for each asset: Hi = E[rı] = % to 2 decimal places M2 = E[r2] = % to 2 decimal places (b) Find the risk o...
Exercise 2. Suppose that there is one risk free asset with return rf and one risky asset with normally distributed returns, r ~ N(u,02). Show that the CARA utility u(r) = -e-Ar gives the same optimal allocation of wealth to the risky asset as the mean-variance utility function we used in class. That is, show that E[r] – rf OCARA = AO2 Hint: Use the fact that if a random variable x is distributed normally with mean Mx and variance...
please help and show your work!
Consider a market model with three assets: two risky assets (#1 and #2) and one risk-free asset (#3). The risk-free rate of interest is r = 3%. The parameters of the risky returns are as follows: 02 = 15%, Mi = 6%, H2 = 9%, 01 = 10%, P12 = -10%. 1. Let u(x) and g(x) with xe (-0,00) denote, respectively, the expected return and volatility of my portfolio if I allocate 100x% of...
Only Questions 4,5 and 6
a=5
Problem 1. Let (X1, ...., Xn) be an i.i.d random sample with X; ~ U[0, 2a), and (Y1, ..., Yn) be an i.i.d random sample with Y; ~ Exp ( 1. Find E[X;], E[X3], E[Y/] and E[Y;?). 2. Notwithstanding the actual distributions of the random samples, suppose the modeller believes that they are i.i.d draws from a U (0, 2a distribution. Find the (simple) method of moments estimator â. 3. Let n = 1000....
Question 5 3 pts Consider two assets, A and B, with the following equally likely rates of return: A will return either 3%, 6%, or 3.5%. B will return either 2.5%, 8%, or 7.5 Asset A Asset B 3.5% 7.5% 3.0% 6.0% 8.0% 2.5% Find the expected rates of return for assets A and B. Which asset would an investor, who cares only about expected return and risk and can choose only one or the other, prefer? A is better...
2. 3: Risk and Rates of Return: Risk in Portfolio Context Risk
and Rates of Return: Risk in Portfolio Context The capital asset
pricing model (CAPM) explains how risk should be considered when
stocks and other assets are held . The CAPM states that any stock's
required rate of return is the risk-free rate of return plus a risk
premium that reflects only the risk remaining diversification. Most
individuals hold stocks in portfolios. The risk of a stock held in...
1.3 (5 points) Two stocks have the following expected returns and standard deviations Stock Stock Expected return Standard Deviation A 10% 12% B 15% 20% Consider a portfolio of A and B, and let w, and wg denote the portfolio weights of these two assets, with W + W, =1. Suppose that the correlation between the expected returns on A and B is equal to 0.3. Use these data to construct the portfolio of A and B with the lowest...
Updated: Desperately needs help with question C
and question D. This is all the
information given for this exercise:
There are two assets, X and Y. Both are risky, and pay out only in the range 1, 0, 1.The agent has 1 unit of income and must exhaust his income on these two assets: he cannot hold cash. The price of both assets is 1. The joint distribution of the payoff of the two assets has the form -1 0...
Dropdown options:
1-risk/return
2-equal to/greater or less than
3-self contained/stand-alone
4-variance/standard deviation
5-variance/beta coefficient
6-diversifiable/non-diversiable
7-is/ is not
8-diversifiable/non-diversifiable
9-random/non random
10-decreasing/increasing
11-2000+/500
12-reduces/increases
13-systematic of market/unsystematic or company-specific
14-diversifiable/non diversifiable
1. Basic concepts - Risk and return Professor Isadore (Izzy) Invest-a-Lot retired two years ago from Exceptional College, a small liberal arts college in North Carolina after teaching corporate finance and investment theory for 35 years. Yesterday, Izzy appear on EC LIVE, a television show produced for the students,...
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