Question

In: Finance

Consider the following information about a risky portfolio that you manage and a risk-free asset: E(rP)...

Consider the following information about a risky portfolio that you manage and a risk-free asset: E(rP) = 12%, σP = 18%, rf = 3%.

a. Your client wants to invest a proportion of her total investment budget in your risky fund to provide an expected rate of return on her overall or complete portfolio equal to 6%. What proportion should she invest in the risky portfolio, P, and what proportion in the risk-free asset? (Do not round intermediate calculations. Round your answer to 2 decimal places.)



b. What will be the standard deviation of the rate of return on her portfolio? (Do not round intermediate calculations. Round your answer to 2 decimal places.)



c. Another client wants the highest return possible subject to the constraint that you limit his standard deviation to be no more than 12%. Which client is more risk averse?

  • First client

  • Second client

Solutions

Expert Solution

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

jeff jeffy answered 2 years ago
Next > < Previous

Related Solutions

Consider the following information about a risky portfolio that you manage and risk-free asset: E (rp)...
Consider the following information about a risky portfolio that you manage and risk-free asset: E (rp) = 12.5%, σp=16%, rf=3.5%. a) Your client wants to invest a proportion of her total investment budget in your risky fund to provide an expected return of on overall complete portfolio equal to 9%. What proportion should she invest in the risky portfolio, P, and what proportion in the risk-free asset? b) What will be the standard deviation of return of return on the...
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...
In a portfolio consisting of the risk free asset and/or a risky asset, what is the...
In a portfolio consisting of the risk free asset and/or a risky asset, what is the expected return and standard deviation if you borrow 25% of your net worth by selling short the risk free asset and invest the proceeds in the risky asset, given the following? Rm = .15 Rf = .05 σm = .2
Discuss the implications of combining a risk-free asset with a portfolio of risky assets.
Discuss the implications of combining a risk-free asset with a portfolio of risky assets.
You invest all your money into a risky asset and a risk-free asset. The risky asset...
You invest all your money into a risky asset and a risk-free asset. The risky asset has an expected return of 0.065 and a standard deviation of 0.25, the risk-free asset returns 0.025. What is the return on your combined portfolio if you invest 0.4 in the risky asset, and the remainder in the risk-free asset? Round your answer to the fourth decimal point.
You are given the following information concerning three portfolios, the market portfolio, and the risk-free asset:...
You are given the following information concerning three portfolios, the market portfolio, and the risk-free asset: Portfolio RP σP βP X 12.5 % 38 % 1.45 Y 11.5 33 1.15 Z 9.4 23 0.80 Market 11.9 28 1.00 Risk-free 6.2 0 0 What are the Sharpe ratio, Treynor ratio, and Jensen’s alpha for each portfolio? (A negative value should be indicated by a minus sign. Leave no cells blank - be certain to enter "0" wherever required. Do not round...
You are given the following information concerning three portfolios, the market portfolio, and the risk-free asset:...
You are given the following information concerning three portfolios, the market portfolio, and the risk-free asset: Portfolio Rp σp βp X 12.5 % 38 % 1.45 Y 11.5 33 1.15 Z 9.4 23 .80 Market 11.9 28 1.00 Risk-free 6.2 0 0 What are the Sharpe ratio, Treynor ratio, and Jensen’s alpha for each portfolio? (A negative value should be indicated by a minus sign. Leave no cells blank - be certain to enter "0" wherever required. Do not round...
You are given the following information concerning three portfolios, the market portfolio, and the risk-free asset:...
You are given the following information concerning three portfolios, the market portfolio, and the risk-free asset: Portfolio RP σP βP X 12.5 % 34 % 1.50 Y 11.5 29 1.20 Z 7.1 19 0.80 Market 10.5 24 1.00 Risk-free 6.2 0 0 What are the Sharpe ratio, Treynor ratio, and Jensen’s alpha for each portfolio?
Consider the following four portfolios: Portfolio A has $950 invested in the risk free asset and...
Consider the following four portfolios: Portfolio A has $950 invested in the risk free asset and $50 invested in the market. Portfolio B has $5,000 invested in the risk free asset and $5,000 invested in the market portfolio. Portfolio C has $25,000 invested in the risk free asset and $75,000 invested in the market portfolio. Portfolio D has borrowed $500,000 at the risk free rate (e.g., W(risk free) = -50%) and has invested $1,500,000 in the market portfolio. Assume that...
Suppose your optimal risky portfolio has an expected return E(rp) = 6.5% and standard deviation as...
Suppose your optimal risky portfolio has an expected return E(rp) = 6.5% and standard deviation as 6%. You can also invest in a risk-free asset with rf = 3.5%. Your risk aversion A = 1/15. (a) Calculate the Sharpe ratio. (b) What is the expected return for your complete portfolio, if the standard deviation is 3%? (c) What is the optimal allocation that maximizes your utility? Write down the portion (in a number between 0 and 1, or greater than...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT