Suppose your dear old Grandfather approaches you for investment advice. He knows of your great training...

Suppose your dear old Grandfather approaches you for investment advice. He knows of your great training in finance and statistics and gives the following instructions. "I have lived a long time and through many challenges. But the recent financial upheaval, with its ups and downs, is too much for me to bear. Just pick for me a portfolio with the least risk." Suppose there are portfolios (A, B, and C) to choose from, and next year the economy will be in an expansion, normal, or recession state with probabilities 0.47, 0.37, and 0.16, respectively. The returns (%) on the securities in these states are as follows. Portfolio A {expansion = +14.64, normal = +11.50, recession = +6.50}; Portfolio B {+14.50, +7.50, +3.50}; Portfolio C {+15.00, +9.00, +6.00}. Which investment best fits your grandfather's needs?

Correct answer is Portfolio A. Can you please explain how to get to that result?

Expert Solution

SEE THE IMAGE. ANY DOUBTS, FEEL FREE TO ASK. THUMBS UP PLEASE

ALL FORMULAS ARE SHOWN. NO EXCEL FUNCTION IS USED

ANSWER : GO FOR PORTFOLIO A, AS IT HAS HIGHER RETURN AND LOWER STANDARD DEVIATION

jeff jeffy answered 2 years ago

Your uncle calls and asks for your investment advice. Currently, he has $100,000 invested in a...

Your uncle calls and asks for your investment advice. Currently, he has $100,000 invested in a risky portfolio. This portfolio has an expected return of 10.5% and a volatility of 8%. Suppose the risk-free rate is 5% and the market portfolio has an expected return of 18.5% and a volatility of 13%. To maximize your uncle’s expected return without increasing his volatility, what investment strategy would you recommend? If your uncle prefers to keep his expected return the same, but...

Your grandfather gives your $10,000 to invest and you must invest every penny. He wants you...

Your grandfather gives your $10,000 to invest and you must invest every penny. He wants you to have an expected return of 12.40% for your portfolio. You can chose between stock J with an expected return of 13% and stock L with an expected return of 8%. How much should you invest in stock J to achieve these results?

Your great-great-great-grandfather lost $51 playing poker at a fur-trading post in Wyoming 160 years ago. If...

Your great-great-great-grandfather lost $51 playing poker at a fur-trading post in Wyoming 160 years ago. If he had not lost the money playing poker and instead he had deposited the $51 in a savings account earning 5% interest compounded annually, how much would be in the account today?

On a recent trip home, your grandfather tells you that he has purchased the stock of...

On a recent trip home, your grandfather tells you that he has purchased the stock of two firms in the automobile industry: Toyota and Ford. He goes on to discuss the merits of his decision and one of the points he makes is that he has avoided the risk of purchasing only one company’s stock by diversifying his holdings across two stocks. What do you think of his argument? Based on your study of financial management explain to your grandfather...

Your 70-year-old retired grandfather is very computer-literate. He also has multiple health issues and sees a...

Your 70-year-old retired grandfather is very computer-literate. He also has multiple health issues and sees a number of different specialists. He recently heard about patient portal from his healthcare provider. He wants you to explain to him the use of patient portals and its benefits. What information will you provide your grandfather on his request, and how will you advise him on the use of the patient portal?

Two of your acquaintances (Mercy and Dennis) approach you seeking investment advice.

INSTRUCTIONS: SUBMIT SOFT COPY OF YOUR ANSWERS ON MOODLECASE STUDYTwo of your acquaintances (Mercy and Dennis) approach you seeking investment advice. Each of them had K100 000 of savings to invest. Both invested in LSK Ltd shares which were trading at K20 per share. Mercy used her entire savings to purchase LSK Ltd shares. Dennis felt that LSK Ltd shares would perform well so he approached a broker and took up a margin transaction with a 55% initial requirement. The...

The investment committee of your church has come to you for advice one of the stocks...

The investment committee of your church has come to you for advice one of the stocks held by the church has paid cash dividends for years. This year the company issues a stock dividend so that the church received additional shares rather than cash. The committee is concerned about whether this stock dividend is really worth anything. One committee member argues the stock dividend is as good as cash; another argues that the dividend is worthless. Write a brief report...

When you were born, your dear old aunt minnie promised to deposit $500 into a savings...

When you were born, your dear old aunt minnie promised to deposit $500 into a savings account bearing a 5% compounded annual rate on each birthday, beginning with your first. You have just turned 21 and want the dough. However, it turns out that dear old (forgetful) aunt minnie made no deposits on your fifth and eleventh birthdays. How much is in the account right now?

Your best friend knows that you are currently taking an accounting class, and he comes to...

Your best friend knows that you are currently taking an accounting class, and he comes to you for some advice. He is interested in using his savings to purchase stock in a public corporation. He downloaded the annual report for two retail companies. He has the following questions about the two retail companies: What is typically included in each statement? Why do the statements appear in the following order? Income Statement Retained Earnings Statement Balance Sheet Cash Flow Statement What...

Your grandfather is retiring at the end of next year. He would like to ensure that...

Your grandfather is retiring at the end of next year. He would like to ensure that his heirs receive payments of $8,100 a year forever, starting when he retires. If he can earn 7.1 percent annually, how much does your grandfather need to invest to produce the desired cash flow? (Round answer to 2 decimal places e.g. 15.25.) Present value of investment

Question