Let five investment portfolios. Also let investment A rank at the top according to the measure we called “market price of risk,” then

Let five investment portfolios. Also let investment A rank at the top according to the measure we called “market price of risk,” then, if we rank the same portfolios according to Sharpe ratio, investment A will rank

a.

at the top

b.

at the third position (middle)

c.

cannot tell

d.

at the bottom

Expert Solution

Answer: (a) at the top

(a) Given investment A rank at the top according to the measure we called “market price of risk".

Market price of risk is the measure of the extra return, or risk premium(return in excess of Risk free rate), that investors demand to bear risk. The reward-to-risk ratio of the market portfolio.

(b) Sharpe ratio is the average return earned in excess of the risk-free rate per unit of total risk.

The greater the value of the Sharpe ratio, the more attractive the risk-adjusted return.

Aas both the Measures give the simliar Outcome of Return for the extra risk undertaken, Invesstment A will rank at the top even for the Sharpe ratio.

jeff jeffy answered 2 years ago

Below are five typical investment alternatives, rank these five from lowest risk to highest risk and...

Below are five typical investment alternatives, rank these five from lowest risk to highest risk and explain your reasons for the ranking. In addition provide an example of a real investment that represents each alternative. Current stock price or current yield of the credit investment. Large-company stocks Small-company stocks Long-term corporate bonds U.S. Treasury Bills Long-term Government Bonds(20-30year)

Let θ = (rm - rf) / σm be the market risk price and θ* = (rm - rf) / σ2m = θ / σm, where σm is the standard deviation of market portfolio returns.

Let θ = (rm - rf) / σm be the market risk price and θ* = (rm - rf) / σ2m = θ / σm, where σm is the standard deviation of market portfolio returns. If Pit is the price of stock i at times t = 0, 1, calculate the theoretical price Pio without subtracting the risk from the expected value E(Pi1).

Question

Let five investment portfolios. Also let investment A rank at the top according to the measure we called “market price of risk,” then

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Expert Solution

Related Solutions

Below are five typical investment alternatives, rank these five from lowest risk to highest risk and...

Let θ = (rm - rf) / σm be the market risk price and θ* = (rm - rf) / σ2m = θ / σm, where σm is the standard deviation of market portfolio returns.