MULTIPLE CHOICE Q In the absence of a risk free asset, which of the following ranking...
MULTIPLE CHOICE Q In the absence of a risk free asset, which of the following ranking rule is needed to locate the optimal portfolio of risky assets?
A. The portfolio with the largest utility is preferred.
B. The portfolio with the largest reward to variability ratio is preferred.
C. For a given level of expected return, the portfolio with the lowest level of risk is preferred.
D. For a given level of risk, the portfolio with the largest expected return is preferred..
E. None of the above
Homework Answers
Option B.The portfolio with the largest reward to variability ratio is preferred.
Reason : Using the ranking method either using Sharpe ratio or Treynor ratio the portfolio is ranked on the basis of excess return(reward) to the beta (variability) of the portfolio is considered.
Add Answer to:
MULTIPLE CHOICE Q In the absence of a risk free asset, which of
the following ranking...
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...
Expected return is the return on a _______ asset expected in the future. Multiple Choice A....
Expected return is the return on a _______ asset expected in the future. Multiple Choice A. risky B. average C. portfolio D. no-risk E. risk-free
Intro Assume that there are only two stocks in the economy, stock A and stock B. The risk-free asset has a return of 3%...
Intro Assume that there are only two stocks in the economy, stock A and stock B. The risk-free asset has a return of 3%. The optimal risky portfolio, i.e., the portfolio with the highest Sharpe ratio, is given below: A BC Stock A Stock B Risk-free asset 2 Expected return 0.062 0.075 0.03 3 Variance 0.1521 0.0484 4 Standard deviation 0.39 0.22 5 Covariance 0.02574 D Optimal risky portfolio 8 Weights 9 Expected return 10 Variance 11 Standard deviation 12...
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...
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...
Suppose there are two assets, one is risk-free and one is risky. The risk-free asset has a sure r...
Suppose there are two assets, one is risk-free and one is risky. The risk-free asset has a sure rate of return rj, the risky asset has a random rate of return r. Suppose the utility function of an investor is U(x) =--. The initial wealth is wo, the dollar amount invested in the risky asset is θ. r is normally distributed with mean μ and variance σ2. Based on the maximum utility framework, find the optimal investment strategy 6. (25...
Suppose there are two assets, one is risk-free and one is risky. The risk-free asset has...
Suppose there are two assets, one is risk-free and one is risky. The risk-free asset has a sure rate of return rj, the risky asset has a random rate of return r. Suppose the utility function of an investor is U(x) =--. The initial wealth is wo, the dollar amount invested in the risky asset is θ. r is normally distributed with mean μ and variance σ2. Based on the maximum utility framework, find the optimal investment strategy 6. (25...
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...
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...
Use the following data for questions 1 to 4. You have a risky asset and risk...
Use the following data for questions 1 to 4. You have a risky asset and risk free asset with the following risk and return values to build your portfolio: ?? = 7%, ?(??) = 15%, ?? = 22% 1. What is the return for a portfolio with a risk of 10%? (a) 10.63% (b) 20.63% (c) 30.63% (d) None of the above 2. What would be the risk of a portfolio with an expected return of 20%? (a) 10.63% (b)...
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...
Intro Assume that there are only two stocks in the economy, stock A and stock B. The risk-free asset has a return of 3%. The optimal risky portfolio, i.e., the portfolio with the highest Sharpe ratio, is given below: A BC Stock A Stock B Risk-free asset 2 Expected return 0.062 0.075 0.03 3 Variance 0.1521 0.0484 4 Standard deviation 0.39 0.22 5 Covariance 0.02574 D Optimal risky portfolio 8 Weights 9 Expected return 10 Variance 11 Standard deviation 12...
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...
Suppose there are two assets, one is risk-free and one is risky. The risk-free asset has a sure rate of return rj, the risky asset has a random rate of return r. Suppose the utility function of an investor is U(x) =--. The initial wealth is wo, the dollar amount invested in the risky asset is θ. r is normally distributed with mean μ and variance σ2. Based on the maximum utility framework, find the optimal investment strategy 6. (25...
Suppose there are two assets, one is risk-free and one is risky. The risk-free asset has a sure rate of return rj, the risky asset has a random rate of return r. Suppose the utility function of an investor is U(x) =--. The initial wealth is wo, the dollar amount invested in the risky asset is θ. r is normally distributed with mean μ and variance σ2. Based on the maximum utility framework, find the optimal investment strategy 6. (25...
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...
Most questions answered within 3 hours.
-
The following reactions have the indicated equilibrium constants
at a particular temperature: N2(g) + O2(g) ⇌...
asked 1 minute from now -
Please Help ASAP.
1Consider the below code which iterates over a linked
list of n nodes...
asked 13 minutes ago -
Determine the air to fuel ratio of:
Canadian natural gas, with 93.9% methane, 4.2% ethane, 0.3%...
asked 14 minutes ago -
A manufacturer of power tools claims that the average amount of
time required to assemble their...
asked 16 minutes ago -
"electron-withdrawing substituents on carbon encourage back
donation", then on the next page he says that "greater...
asked 27 minutes ago -
On December 31, 2016, the shareholders’ equity section of the
balance sheet of R & L...
asked 36 minutes ago -
16.7
At t=0s a small "upward" (positive y) pulse centered at x = 5.0
m is...
asked 49 minutes ago -
Twitter Users and News: A poll conducted in 2013 found that 52%
of U.S. adult Twitter...
asked 1 hour ago -
How
would I know whether a given amino acid has an ionizable group or
not? please...
asked 1 hour ago -
True or false?
True False The function of the enzyme acyl CoA
synthetase is the ATP-dependent coupling...
asked 1 hour ago -
Nadia Corporation adjusts its debt so that its interest coverage
(EBIT/Interest) remains constant at 3. Nadia’s...
asked 1 hour ago -
In a clinical trial, 20 out of 600 patients taking a
prescription drug complained of flulike...
asked 1 hour ago