Question
In: Finance
Suppose you are giving the outcome returns of some assets under different scenarios. The probability for...
Suppose you are giving the outcome returns of some assets under different scenarios. The probability for the bearish, neutral and bullish market is 20%, 50% and 30%.
| Asset |
Bearish Market |
Neutral | Bullish Market |
| A | -4.0% | 0.0% | 8.0% |
| B | 8.0% | 3.0% | -7.0% |
| C | -13.0% | -2.0% | 20.0% |
| D | 6.0% | 2.0% | -1.0% |
| E | 20.0% | 10.0% | 10.0% |
| Risk free Asset | 0.5% | 0.5% | 0.5% |
Please answer the following questions
Q1(1 point) What are the correlations between A and all other assets?
Q2 (1 point) How do you form MVP from asset A and B only (find the weights)?
Q3(1 point) What is the equation representing the efficient frontier for the above case in Q2?
Q4(1 point) How do you form the MVP based on asset A and C only, assuming short selling is allowed?
Q5(1 point) What is the equation representing the EF for the Q4 case?
Q6(1 point) What is the optimal RISKY market portfolio if asset A and D are the only two risky assets?
Q7(2 points) What is the optimal portfolio for an risk averse investor with A=200 is there are only asset A and D and risk free asset?
Q8(2 points) Assume the market portfolio has std of 3%, and the beta of asset A is 0.6, to what extend the expected return of asset A can be explained by singleindex model using the given market portfolio as the market index, and how much is the unsystematic risk based on this single-index model ?
Solutions
jeff jeffy answered 7 months agoRelated Solutions
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Stock B
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0.1
-16
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Above Average
0.2
-3
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Average
0.4
14
10
Below Average
0.2
28
15
Boom
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35
20
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State of the Economy
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Stock B
Recession
0.1
-16
-12
Above Average
0.2
-3
4
Average
0.4
14
10
Below Average
0.2
28
15
Boom
0.1
35
20
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Stock B
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-12
Above Average
0.2
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Average
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14
10
Below Average
0.2
28
15
Boom
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Question 1
Consider the two assets A and B for which returns (%) under
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State of the Economy
Probability
Stock A
Stock B
Recession
0.1
-18
-10
Above Average
0.2
-4
2
Average
0.4
12
8
Below Average
0.2
24
12
Boom
0.1
30
18
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each asset
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