Assuming there is ONE risk factor, the interest rate (IR) risk factor. Investors can borrow at...

Assuming there is ONE risk factor, the interest rate (IR) risk factor. Investors can borrow at the risk-free rate rf of 3%. Portfolio (A) is well-diversified with the risk-return profile below. If an investor wants to profit $10,000 from a net-zero portfolio, constructed with Portfolio A, IR portfolio, and the risk-free rate. How much does he need to borrow/lend at the risk-free rate?

Portfolio A has a beta of 1.2 and E(R)-rf = 8%

Interest Rate Risk Factor Portfolio has a beta of 1 and E(R)-rf = 6%

a) Borrow $55,556

b) Lend $55,556

c) Borrow $250,000

d) Lend $250,000

e) None of the above

Expert Solution

jeff jeffy answered 3 months ago

Bob wants a portfolio with expected return of 22%. Investors can borrow and lend at the risk-free rate.

F: risk free The correlation between Asset A and Asset B is -0.2.Asset F A BStandard Deviation 0 0.35 0.6Expected Return 0.02 0.12 0.26Bob wants a portfolio with expected return of 22%. Investors can borrow and lend at the risk-free rate. Calculate the standard deviation of each. G is the global minimum variance combination of A and B. T is the tangency portfolio composed of A and B.1) Invest only in assets A and B, standard deviation of Portfolio AB...

Low-risk investors should assume an interest rate of 6% annually. Moderate-risk investors should use 8%, high-risk...

Low-risk investors should assume an interest rate of 6% annually. Moderate-risk investors should use 8%, high-risk investors should assume 10%, and ultra high-risk investors should use 12%. For purposes of this calculation, ignore any Social Security benefit received. Assume you are 22 years old and want to be a millionaire at retirement (age 65). How much do you need to save each month to reach your goal if you are a high-risk investor? A. $117 B. $704 C. $1,688 D....

An investor can borrow or invest at a risk-free rate of 4%. The investor is a...

An investor can borrow or invest at a risk-free rate of 4%. The investor is a mean-variance utility maximize with a risk aversion coefficient A = 4. What is the expected return on an optimal allocation between the risk-free security and a risky portfolio with an expected return of 10% and a volatility of 20%?

explain interest rate risk or maturity price risk faced by short term and long term investors...

explain interest rate risk or maturity price risk faced by short term and long term investors in bonds using an example

For a corporation that can borrow freely at the current prime interest rate and seeks to...

For a corporation that can borrow freely at the current prime interest rate and seeks to maximize its expected profit over the next several years, how does the reduction in the marginal corporate income tax from 35% to 21% in the TCAJ act affect the amount it would choose to spend on new equipment, financed by new borrowing? Ignore other reforms in the TCAJ act that affect the corporation’s tax liability. Justify your answer.

Investors receive a 8% annual interest rate on their bank deposits. (These are essentially as risk-free...

Investors receive a 8% annual interest rate on their bank deposits. (These are essentially as risk-free as Treasuries, because the Federal Government guarantees banks deposits against defaults {within certain limits}). If the annual inflation rate is zero, what is the real interest rate will the investors will earn on their deposits?

If you borrow $7400 at $700 interest for one year, what is your effective interest rate...

If you borrow $7400 at $700 interest for one year, what is your effective interest rate for the following payment plans? (Input your answers as a percent rounded to 2 decimal places.) Effective Rate of Interest a. Annual payment % b. Semiannual payments % c.Quarterly payments % d. Monthly payments %

Compound Interest 22.) You borrow 1,000,000 for one year from a friend at an interest rate...

Compound Interest 22.) You borrow 1,000,000 for one year from a friend at an interest rate of 1% per month instead of taking a loan from a bank at a rate of 13% per year. Compare how much money you will save or lose on the transaction. 24.) John expects to receive Php 20,000 in 10 years. How much is the money worth now considering interest at 6% compounded quarterly? 25.) A man who won P 500,000 in a lottery...

6. The one-year risk-free interest rate in Mexico is 8%. The one-year risk-free rate in the...

6. The one-year risk-free interest rate in Mexico is 8%. The one-year risk-free rate in the U.S. is 3%. Assume that interest rate parity exists. The spot rate of the Mexican peso is $.15. a. What is the forward rate premium or discount according to the IRP (using the exact formula)? b. What is the one-year forward rate of the peso based on the answer from part (a)? c. Based on the international Fisher effect (using the exact formula), what...

Originally, Olivia planned her life assuming she could borrow or save at r1 (interest rate). Now...

Originally, Olivia planned her life assuming she could borrow or save at r1 (interest rate). Now Olivia is told that she can save money at an interest rate of r2 and borrow at an interest rate of r3, where r3>r1>r2. Draw Olivia's budget constraint. What can you conclude about Olivia's new consumption bundle, as compared to the one she anticipated originally?

Question