ZuoTi.Pro
Question

Let two risky assets, U and T and the following information regarding the two assets E(rU)...

Let two risky assets, U and T and the following information regarding the two assets

E(rU) = 5%, σU = 13% and E(rT) = 90%, σT = 22%. Also assume that ρU,T = -1.

Then, to form a zero risk portfolio by combining the two assets wU must equal (approximately)

a.

0.63

 b.

0.84

 c.

0.24

 d.

1.34
business   finance   
0 0
Add a comment Improve this question Transcribed image text
Next > < Previous
Sort answers by oldest

Homework Answers

Answer #1

Answer: a. 0.63

Please do rate me and mention doubts, if any, in the comments section.

0 0
Add a comment
Know the answer?
Add Answer to:
Let two risky assets, U and T and the following information regarding the two assets E(rU)...
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for? Ask your own homework help question. Our experts will answer your question WITHIN MINUTES for Free.
Similar Homework Help Questions

  • 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...

  • Consider two risky assets A and B with E(rA)= 15%, Sigma= 32%, E(rB)= 0.09, Sigma B=...

    Consider two risky assets A and B with E(rA)= 15%, Sigma= 32%, E(rB)= 0.09, Sigma B= 23%, corrA,B= 0.2. The risk free rate is 5%. The optimal risky portfolio of comprised of the two risky assets is to allocate 64% to A and the rest to B. What is the standard deviation of the optimal risky portfolio

  • 2. Consider an economy with 2 risky assets and one risk free asset. Two investors, A...

    2. Consider an economy with 2 risky assets and one risk free asset. Two investors, A and B, have mean-variance utility functions (with different risk aversion coef- ficients). Let P denote investor A's optimal portfolio of risky and risk-free assets and let Q denote investor B's optimal portfolio of risky and risk-free assets. P and Q have expected returns and standard deviations given by P Q E[R] St. Dev. 0.2 0.45 0.1 0.25 (a) What is the risk-free interest rate...

  • Question 1 Consider two risky assets A and B with E(rA)= 15%, Sigma_A= 32%, E(rB)= 0.09,...

    Question 1 Consider two risky assets A and B with E(rA)= 15%, Sigma_A= 32%, E(rB)= 0.09, Sigma_B= 23%, corrA,B= 0.2. The risk free rate is 5%. The optimal risky portfolio of comprised of the two risky assets is to allocate 64% to A and the rest to B. What is the standard deviation of the optimal risky portfolio ? Select one: a. 20.75% b. 23.61% c. 22.86% d. 23.00% Question 2 Continued with previous question. What is the Sharpe ratio...

  • Question 1 Consider two risky assets A and B with E(rA)= 15%, Sigma_A= 32%, E(rB)= 0.09,...

    Question 1 Consider two risky assets A and B with E(rA)= 15%, Sigma_A= 32%, E(rB)= 0.09, Sigma_B= 23%, corrA,B= 0.2. The risk free rate is 5%. The optimal risky portfolio of comprised of the two risky assets is to allocate 64% to A and the rest to B. What is the standard deviation of the optimal risky portfolio ? Select one: a. 20.75% b. 23.61% c. 22.86% d. 23.00% Question 2 Continued with previous question. What is the Sharpe ratio...

  • Which of the following statements is FALSE regarding the risk of a portfolio comprised of two...

    Which of the following statements is FALSE regarding the risk of a portfolio comprised of two risky securities A & B? a) If the correlation between A & B is +1, the risk of the portfolio comprising A &B is simply the weighted average of the volatilities of A & B. b) The risk of a portfolio comprising A & B can be less than the risk of either A or B c) If the correlation between A & B...

  • The universe of available securities includes two risky stocks A and B, and a risk-free asset....

    The universe of available securities includes two risky stocks A and B, and a risk-free asset. The data for the universe are as follows: Assets Expected Return Standard Deviation Stock A 6% 25% Stock B 12% 42% Risk free 5% 0 The correlation coefficient between A and B is -0.2. The investor maximizes a utility function U=E(r)−σ2 (i.e. she has a coefficient of risk aversion equal to 2). Assume that to maximize his utility when there is no available risk-free...

  • Suppose that the rate of return on risky assets is given by the following single factor model: wh...

    Suppose that the rate of return on risky assets is given by the following single factor model: where F is the factor affecting returns on all securities and e, is a firm-specific dis- turbance. The risk-free rate is 4% and borrowing at this rate is possible. Two well- diversified portfolios P and Q are found to have the following expected returns and betas: E(rp) 12% ßP : 0.8 (a) Explain why these data are inconsistent with Arbitrage Pricing Theory (b)...

  • 2. Consider two risky assets (A and B), with the following characteristics: E(TA) = 6% and...

    2. Consider two risky assets (A and B), with the following characteristics: E(TA) = 6% and OA = 10% , E(TB) = 8% and B= 16%. 5 points) (a) Suppose that the correlation between A and B is 1. What is the minimum variance portfolio? (2 points) (b) Same question if the correlation is -1. Calculate the expected return on the minimum variance portfolio 3 points)

  • Which of the following statements is (are) false regarding the risk of a portfolio of two...

    Which of the following statements is (are) false regarding the risk of a portfolio of two risky securities A & B? A. The co-variance of A&B equals the volatility A plus volatility B plus the correlation between A&B B. If the correlation between A & B is -1, a risk free portfolio comprising A &B can be constructed that would have an expected return equal to the risk free rate C. The risk of a portfolio comprising A & B...

ADVERTISEMENT
Free Homework Help App
Download From Google Play
Scan Your Homework
to Get Instant Free Answers
Need Online Homework Help?
Ask a Question
Get Answers For Free
Most questions answered within 3 hours.
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT