Consider a set of risky assets that has the following expected return and standard deviation: Asset...

Consider a set of risky assets that has the following expected return and standard deviation:

Asset	Expected Return E(r)	Standard Deviation
1	0.12	0.3
2	0.15	0.5
3	0.21	0.16
4	0.24	0.21

If your utility function is as described in the book/lecture with a coefficient of risk aversion of 4.0 , then what is the second-lowest utility you can obtain from an investment in one (and only one) of these assets? Please calculate utility using returns expressed in decimal form (e.g., use .12, not 12 for the expected return of Asset 1). Please enter your answer rounded to the third decimal place

Expert Solution

Utility from Asset

1.
=0.12-0.5*4*(0.3)^2=-0.06

2.
=0.15-0.5*4*(0.5)^2=-0.35

3.
=0.21-0.5*4*(0.16)^2=0.1588

4.
=0.24-0.5*4*(0.21)^2=0.1518

Second lowest utility is -0.0600

jeff jeffy answered 2 years ago

The risky asset has an expected return of 0.22 and a standard deviation of 0.31, and...

The risky asset has an expected return of 0.22 and a standard deviation of 0.31, and the T-bill has a rate of return of 0.04. What fraction of the portfolio must be invested in the risk-free asset to form a portfolio with a standard deviation of 0.19? Round your answer to 4 decimal places. For example, if your answer is 3.205%, then please write down 0.0321.

Consider the following two assets: Asset A’s expected return is 15% and return standard deviation is...

Consider the following two assets: Asset A’s expected return is 15% and return standard deviation is 20%. Asset B’s expected return is 10% and return standard deviation is 15%. The correlation between assets A and B is 0.5. (a) w1=0.75, w2=.50, find out expected returns and SD/VARIANCE (b) Instead of a correlation of 0.5 between assets A and B, consider a correlation of - 0.5 and re-compute the above.

Consider the following information: A risky portfolio contains two risky assets. The expected return and standard...

Consider the following information: A risky portfolio contains two risky assets. The expected return and standard deviation for the first risky asset is 18% and 25%, respectively. The expected return and standard deviation for the second risky asset is 18% and 25%, respectively. The correlation between the two risky assets is .55. The expected on the 10-year Treasury bond is 3%. Find the minimum variance portfolio. Make sure to provide the weights, excepted return, and standard deviation of the portfolio...

If the expected return on a risky asset is 13%, standard deviation is 25%, and the risk free asset 5%.

If the expected return on a risky asset is 13%, standard deviation is 25%, and the risk free asset 5%.Calculate the expected return , standard deviation, sharp ratio for the complete portfolio with y= .60

Risky Asset 1 Risky Asset 2 Expected Return 0.11 .15 Standard Deviation 0.28 .88 The coefficient...

Risky Asset 1 Risky Asset 2 Expected Return 0.11 .15 Standard Deviation 0.28 .88 The coefficient of correlation ρ between these two assets is equal to .009, and the risk free rate is 3.8%. 2A. If you wished to construct the optimal risky portfolio using these two assets, what percentage this portfolio would consist of Asset 1? (10 points) 2B. What is the expected return of the portfolio from 2A? 2C. What is the standard deviation of the portfolio from...

Risky Asset 1 Risky Asset 2 Expected Return 0.11 .15 Standard Deviation 0.28 .88 coefficient of...

Risky Asset 1 Risky Asset 2 Expected Return 0.11 .15 Standard Deviation 0.28 .88 coefficient of correlation ρ between these two assets is equal to .009, and the risk-free rate is 3.8%. 1. If you wished to construct the optimal risky portfolio using these two assets, what percentage this portfolio would consist of Asset 1? 2. What is the expected return of the portfolio from question 1? 3. What is the standard deviation of the portfolio from question 1? 4....

Asset A has an expected return of 15% and standard deviation of 20%. Asset B has an expected return of 20% and standard deviation of 15%.

1. Asset A has an expected return of 15% and standard deviation of 20%. Asset B has an expected return of 20% and standard deviation of 15%. The riskfree rate is 5%. A risk-averse investor would prefer a portfolio using the risk-free asset and _______. A) asset A B) asset B C) no risky asset D) cannot tell from data provided2. The Sharpe-ratio is useful for A) borrowing capital for investing B) investing available capital C) correctly...

There are 2 assets. Asset 1: Expected return 7.5%, standard deviation 9% Asset 2: Expected return...

There are 2 assets. Asset 1: Expected return 7.5%, standard deviation 9% Asset 2: Expected return 11%, standard deviation 12%, correlation with asset 1 is 0.4 You hold 30% of your portfolio in asset 1 and 70% in asset 2. a) (1 point) What is the expected return of your portfolio? b) (1 point) What is the covariance between assets 1 and 2? c) (1 point) What is the standard deviation of your portfolio?

Table.1 Risky Asset 1 Risky Asset 2 Expected Return 0.12 .16 Standard Deviation 0.29 .89 The...

Table.1 Risky Asset 1 Risky Asset 2 Expected Return 0.12 .16 Standard Deviation 0.29 .89 The coefficient of correlation ρ between these two assets is equal to .009, and the risk free rate is 3.8%. 1) If you wished to construct the optimal risky portfolio using these two assets, what percentage this portfolio would consist of Asset 1? 2) What is the expected return of the portfolio from question 1? 3) What is the standard deviation of the portfolio from...

The (annual) expected return and standard deviation of returns for 2 assets are as follows: Asset...

The (annual) expected return and standard deviation of returns for 2 assets are as follows: Asset A : E[r] 10% , SD[r] 30% Asset B : E[r] 20% , SD[r] 50% The correlation between the returns is 0.15 a. Calculate the expected returns and standard deviations of the following portfolios: i) 80% in A, 20% in B : 12%/27.35% ii) 50% in A, 50% in B : 15% /30.02% iii) 20% in A, 80% in B : 18%/41.33% b. Find...

Question