Q10. Please draw diagrams to answer this question. You’ve just decided upon your capital allocation for...
Q10. Please draw diagrams to answer this question.
- You’ve just decided upon your capital allocation for the next year. You believe the expected return should be 10% and the standard deviation is 28%. The risk-free rate is 5%. As the market moves, you would like to raise the expected return, lower the standard deviation of your risky portfolio, and adjust the risk-free rate to 4%. Will you increase or decrease your allocation to your risky portfolio given the same expected return?
- When the risk-free rate increases because of inflation, investors should reduce their allocation to risky portfolio given the same expected return. Do you agree? Why?
Homework Answers
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Q10. Please draw diagrams to answer this
question.
You’ve just decided upon your capital allocation for...
3. Which of the following statements are true? Please Explain. a. A lower allocation to the...
3. Which of the following statements are true? Please Explain. a. A lower allocation to the risky portfolio reduces the Sharpe (reward-to-volatility) ratio. b. The higher the borrowing rate, the lower the Sharpe ratios of levered portfolios. c. With a fixed risk-free rate, doubling the expected return and standard deviation of the risky portfolio will double the Sharpe ratio. d. Holding constant the risk premium of the risky portfolio, a higher risk-free rate will increase the Sharpe ratio of investments...
You manage a risky portfolio with an expected return of 12% and a standard deviation of 24%. Assume that you can invest...
You manage a risky portfolio with an expected return of 12% and a standard deviation of 24%. Assume that you can invest and borrow at a risk-free rate of 3%, using T-bills. a. Draw the Capital Allocation Line (CAL) for this combination of risky portfolio and risk-free asset. What is the Sharpe ratio of the risky portfolio? b. Your client chooses to invest 50% of their funds into your risky portfolio and 50% risk-free. What is the expected return and...
Problem 2 (15 points) You invest $1,000 in a complete portfolio. The complete portfolio is composed...
Problem 2 (15 points) You invest $1,000 in a complete portfolio. The complete portfolio is composed of a risky portfolio with an expected rate of return of 16% and a standard deviation of 20% and a treasury bill with a rate of return of 5%. a) what percentage of your complete portfolio should be invested in the risky portfolio il you want your complete portfolio to have a standard deviation of 9%? b) The slope of the capital allocation line...
A. Capital Allocation Lines The optimal CAL is found as the ray from the risk free...
A. Capital Allocation Lines The optimal CAL is found as the ray from the risk free rate that is tangent to the _____________ and is called the ________________. efficient frontier; CML minimum variance portfolio; high range CAL indifference curve; SML lower half of the investment opportunity set; CAPM B. Capital Allocation Portfolio 1 has a standard deviation of 35% and a Sharpe ratio of 0.48. Portfolio 2 has a standard deviation of 29% and a Sharpe ratio of 0.44. Portfolio...
I need help with this capital allocation exercise. Please help. Only the literal c. It is...
I need help with this capital allocation exercise. Please help.
Only the literal c. It is a continuous exercise, for that I have to
post all the literals for better understanding
Allocation of capital between the risky asset and the risk-free asset. For the next section, geneate a table in Excel to obtain its results for the possible combinations of complete portfolios. The table can help you answer all the questions that follow. Generate this table with intervals of 0.05...
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...
SECTION IT these questions are worth double in weight -41. (Double weight question) Suppose in security....
SECTION IT these questions are worth double in weight -41. (Double weight question) Suppose in security. The securities returns are: r on) Suppose investors form portfolios by combing one risky security with one risk free security. The Risk free -0.03 risky -0.15 and SD -0.25 Let wl denote the share of wealth in the risky asset utility function. wealth in the risky asset. Determine the optimal portfolio for an investor with the following (This is of the form E(u)-(expected return...
For the following questions, assume that you manage a risky portfolio with an expected rate of...
For the following questions, assume that you manage a risky portfolio with an expected rate of return of 18% and a standard deviation of 26%. The T-bill rate is 7%. 3. You have a risky portfolio that yields an expected rate of return of 15% with a standard deviation of 25%. Draw the CAL for an expected return/standard deviation diagram if the risk free rate is 5%. a. What is the slope of the CAL? b. If your coefficient of...
I know that the answer to the question is D I just need to know how...
I know that the answer to the question is D I just need to know
how to work out the problem by hand. Thanks for any and all
help!
7. The return on the risky portfolio is 15%. The risk-free rate as well as the investor's borrowing rate is 10%. The standard deviation of return on the risky portfolio is 20%. If the standard deviation on the complete portfolio is 25%, the expected return on the complete portfolio is A)...
answer all. For the next question, assume an investor with the following utility function U-E)-3/2) 12. To maximize her expected uility, she would choose the set with an espect rate of return of...
answer all.
For the next question, assume an investor with the following utility function U-E)-3/2) 12. To maximize her expected uility, she would choose the set with an espect rate of return of and a standard deviation ofrspectively A. 1296; 20% B. 10%; 15% C. 1056; 1056 D, 8%, 10% Е.none ofthe above 13. Which of the following statements regarding the Capital Allocation Line (CAL) false? A. The CAL shows risk-return combinations. B. The slope of the CAL equals the...
3. Which of the following statements are true? Please Explain. a. A lower allocation to the risky portfolio reduces the Sharpe (reward-to-volatility) ratio. b. The higher the borrowing rate, the lower the Sharpe ratios of levered portfolios. c. With a fixed risk-free rate, doubling the expected return and standard deviation of the risky portfolio will double the Sharpe ratio. d. Holding constant the risk premium of the risky portfolio, a higher risk-free rate will increase the Sharpe ratio of investments...
Problem 2 (15 points) You invest $1,000 in a complete portfolio. The complete portfolio is composed of a risky portfolio with an expected rate of return of 16% and a standard deviation of 20% and a treasury bill with a rate of return of 5%. a) what percentage of your complete portfolio should be invested in the risky portfolio il you want your complete portfolio to have a standard deviation of 9%? b) The slope of the capital allocation line...
I need help with this capital allocation exercise. Please help.
Only the literal c. It is a continuous exercise, for that I have to
post all the literals for better understanding
Allocation of capital between the risky asset and the risk-free asset. For the next section, geneate a table in Excel to obtain its results for the possible combinations of complete portfolios. The table can help you answer all the questions that follow. Generate this table with intervals of 0.05...
SECTION IT these questions are worth double in weight -41. (Double weight question) Suppose in security. The securities returns are: r on) Suppose investors form portfolios by combing one risky security with one risk free security. The Risk free -0.03 risky -0.15 and SD -0.25 Let wl denote the share of wealth in the risky asset utility function. wealth in the risky asset. Determine the optimal portfolio for an investor with the following (This is of the form E(u)-(expected return...
For the following questions, assume that you manage a risky portfolio with an expected rate of return of 18% and a standard deviation of 26%. The T-bill rate is 7%. 3. You have a risky portfolio that yields an expected rate of return of 15% with a standard deviation of 25%. Draw the CAL for an expected return/standard deviation diagram if the risk free rate is 5%. a. What is the slope of the CAL? b. If your coefficient of...
I know that the answer to the question is D I just need to know
how to work out the problem by hand. Thanks for any and all
help!
7. The return on the risky portfolio is 15%. The risk-free rate as well as the investor's borrowing rate is 10%. The standard deviation of return on the risky portfolio is 20%. If the standard deviation on the complete portfolio is 25%, the expected return on the complete portfolio is A)...
answer all.
For the next question, assume an investor with the following utility function U-E)-3/2) 12. To maximize her expected uility, she would choose the set with an espect rate of return of and a standard deviation ofrspectively A. 1296; 20% B. 10%; 15% C. 1056; 1056 D, 8%, 10% Е.none ofthe above 13. Which of the following statements regarding the Capital Allocation Line (CAL) false? A. The CAL shows risk-return combinations. B. The slope of the CAL equals the...
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