Question
In: Finance
You estimate that a passive portfolio, that is, one invested in a risky portfolio that mimics...
You estimate that a passive portfolio, that is, one invested in a risky portfolio that mimics the S&P 500 stock index, yields an expected rate of return of 16% with a standard deviation of 25%. You manage an active portfolio with expected return 21% and standard deviation 32%. The risk-free rate is 8%. Your client's degree of risk aversion is A = 1.8.
a. If he chose to invest in the passive portfolio, what proportion, y, would he select? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
b. What is the fee (percentage of the investment in your fund, deducted at the end of the year) that you can charge to make the client indifferent between your fund and the passive strategy affected by his capital allocation decision (i.e., his choice of y)? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
Solutions
jeff jeffy answered 1 month agoRelated Solutions
You estimate that a passive portfolio, that is, one invested in a risky portfolio that mimics the S&P 500 stock index, yields an expected rate of return of 13% with a standard deviation of 25%.
You estimate that a passive portfolio, that is, one invested in a risky portfolio
that mimics the S&P 500 stock index, yields an expected rate of return of 13%
with a standard deviation of 25%. You manage an active portfolio with expected
return 18% and standard deviation 28%. The risk-free rate is 8%.
a. Draw the CML and your funds’ CAL on an expected return–standard deviation
diagram.
b. What is the slope of the CML?
c. Characterize in one...
You estimate that a passive portfolio invested to mimic the S&P 500 stock index yields an...
You estimate that a passive portfolio invested to mimic the
S&P 500 stock index yields an expected rate of return of 10%
with a standard deviation of 19%. Assume you manage a risky
portfolio with an expected rate of return of 12% and a standard
deviation of 24%. The T-bill rate is 5%. Your client would like to
switch an 80% allocation in your portfolio to an 80% allocation in
the stock market index. How much return would your client...
You estimate that a passive portfolio invested to mimic the S&P 500 stock index yields an...
You estimate that a passive portfolio invested to mimic the
S&P 500 stock index yields an expected rate of return of 10%
with a standard deviation of 19%. Assume you manage a risky
portfolio with an expected rate of return of 12% and a standard
deviation of 24%. The T-bill rate is 5%. Your client would like to
switch an 80% allocation in your portfolio to an 80% allocation in
the stock market index. What would the standard deviation of...
<6> You estimate that a passive portfolio invested to mimic the S&P 500 stock index yields...
<6> You estimate that a passive portfolio invested to
mimic the S&P 500 stock index yields an expected rate of return
of 13% with a standard deviation of 25%. Draw the CML (capital
market line) and your fund’s CAL on an expected
return/standard-deviation diagram.
What is the slope of the CML?
Please characterize in one short paragraph the advantage of
your fund over the passive portfolio investing in S&P 500
index.
[NOTE: CML (capital market line) is a special case...
You estimate that a passive portfolio invested to mimic the S&P 500 stock index yields an expected rate of return of 10% with a standard deviation of 19%.
You estimate that a passive portfolio invested to mimic the S&P 500 stock index yields an expected rate of return of 10% with a standard deviation of 19%. Assume you manage a risky portfolio with an expected rate of return of 12% and a standard deviation of 24%. The T-bill rate is 5%. Your client would like to switch an 80% allocation in your portfolio to an 80% allocation in the stock market index. What would the standard deviation of...
Q1) You have a portfolio of one risky asset and one risk-free asset. The risky asset...
Q1) You have a portfolio of one risky asset and
one risk-free asset. The risky asset has an expected return of 20%
and a variance of 16%. The T-bill rate (that is the risk-free rate)
is 6%. Your client Mary is thinking of investing 75% of her
portfolio in the risky asset and the remaining in a T-bill.
If Mary wants to find a general equation for
the expected return and risk of her portfolio what are the
equations that...
You invest 50% in a risky portfolio, and 50% in a treasury bill. The risky portfolio...
You invest 50% in a risky portfolio, and 50% in a treasury bill.
The risky portfolio has an expected return of 15% and a standard
deviation of 25%. The treasury bill pays 7%. Suppose that your
risky portfolio includes the following investments in the given
proportions: Stock A 30% Stock B 30% Stock C 30% Stock D 10%.
a.) What are the investment proportions in the complete
portfolio, including stock A, B, C, D and the Treasury bill?
b.) What...
You invest 50% in a risky portfolio, and 50% in a treasury bill. The risky portfolio...
You invest 50% in a risky portfolio, and 50% in a treasury bill.
The risky portfolio has an expected return of 15% and a standard
deviation of 25%. The treasury bill pays 7%. Suppose that your
risky portfolio includes the following investments in the given
proportions:
Stock A 30%
Stock B 30%
Stock C 30%
Stock D 10%
What are the investment proportions in the complete portfolio,
including stock A, B, C, D and the Treasury bill & What is...
You are evaluating two investment alternatives. One is a passive market portfolio with an expected return...
You are evaluating two investment alternatives. One is a passive
market portfolio with an expected return of 8% and a standard
deviation of 12%. The other is a fund that is actively managed by
your broker. This fund has an expected return of 11% and a standard
deviation of 14%. The risk-free rate is currently 4%. Answer the
questions below based on this information.
a. What is the slope of the Capital Market Line?
b. What is the slope of...
1.- Modern Portfolio Theory: A Portfolio of Risky Securities Is Not Necessarily a Risky Portfolio. Given...
1.- Modern Portfolio Theory: A Portfolio of Risky
Securities Is Not Necessarily a Risky Portfolio.
Given the portfolio investments and the price changes below,
compute the returns on the whole portfolio. Assume that you have
the same amount invested in each stock. The initial amount is $2000
on each company for a total investment of $10,000.
Initial Price Shares Bought End of Year
Price Value at End of
Year Returns
Co.
A
$40
$20
Co.
B
$80
...
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