Suppose you have $1000 to invest, and you have only two assets to choose from.

Suppose you have $1000 to invest, and you have only two assets to choose from. There is a risky asset that has an expected return of 12% and a standard deviation of 15% and a risk-free asset that has an expected return of 5%.

How would you form a portfolio that has an expected return of 9%?
How would you form a portfolio that has a standard deviation of 6%?

Expert Solution

weight of risky asset=Standard deviation of portfolio/Standard deviation of risky asset

1.
weight of risky asset=9%/15%=0.6000000

Invest 600 in risky asset and 400 in risk free asset

2.
weight of risky asset=6%/15%=0.4000000

Invest 400 in risky asset and 600 in risk free asset

jeff jeffy answered 2 years ago

Suppose you have to choose only one method to evaluate the performance of the segments of...

Suppose you have to choose only one method to evaluate the performance of the segments of a company, what method would you use and why?: the rate of return on investment, the balanced scorecard or the Economic Added Value

Imagine you have $1,000 to invest. Choose what companies you want to invest in. Use the...

Imagine you have $1,000 to invest. Choose what companies you want to invest in. Use the search box to type in the company name to add it to your Watch List. Looks at the current stock prices (i.e. Apple listed at $166.07). If you buy one share, that’s what it would cost you. Spend your $1,000 as you choose on any stocks you would like. Take note of each stock you buy, the price and how many shares. The total...

Suppose you invest $1000 in an account paying 8% interest per year.

Suppose you invest $1000 in an account paying 8% interest per year. a. What is the balance in the account after 3 years? How much of this balance corresponds to “interest on interest”

Suppose you invest $1000 in an account paying 10% interest per year.

Suppose you invest $1000 in an account paying 10% interest per year. How much will you have in the account in 7 years? in 20 years? in 75 years?

1. Suppose that there are two risky assets to invest in. One offers a higher return...

1. Suppose that there are two risky assets to invest in. One offers a higher return than the other, but it also has a higher standard deviation. Will one of these assets always lie on the efficient frontier? Explain. HINTS: RETURN, STANDARD DEVIATION, EFFICIENT FRONTIER, SECTION (EFFICIENT PORTFOLIO) EXPECTED RETURN AND STANDARD DEVIATION RELATIONSHIP EFFICIENT FRONTIER) 2. Discuss why is the relationship between expected return and standard deviation for portfolios of risky and risk-free assets linear HINTS: EXPECTED RETURN AND...

Suppose that there are two risky assets to invest in. One offers a higher return than...

Suppose that there are two risky assets to invest in. One offers a higher return than the other, but it also has a higher standard deviation. Will one of these assets always lie on the efficient frontier? explain in 800 to 1000 words.

Suppose there are only two firms, firm1 and firm2, in the market. They both choose a...

Suppose there are only two firms, firm1 and firm2, in the market. They both choose a quantity to produce simultaneously. The market price is determined by the market demand: p =130-(Q1+Q2) where Q1 is the output quantity of firm1 and Q2 is the output quantity of firm2. Firm1’s total cost of production is 10Q1 and firm2’s total cost of production is 10Q2. That is, both firms have a constant marginal cost of 10. Task 1. What’s firm 1’s best response...

Suppose there are only two firms, firm1 and firm2, in the market. They both choose a...

Suppose there are only two firms, firm1 and firm2, in the market. They both choose a quantity to produce simultaneously. The market price is determined by the market demand: p =130-(Q1+Q2) where Q1 is the output quantity of firm1 and Q2 is the output quantity of firm2. Firm1’s total cost of production is 10Q1 and firm2’s total cost of production is 10Q2. That is, both firms have a constant marginal cost of 10. Task 1. What’s firm 1’s best response...

You have $15,000 to invest in a mutual fund. You choose a fund with a 3.5%...

You have $15,000 to invest in a mutual fund. You choose a fund with a 3.5% front load, a 1.75% management fee, and a 0.5% 12b-1 fee. Assume that the management and 12b-1 fees are charged on year-end assets for simplicity. The gross annual return on the fund's shares was 12.50%. What was your net annual rate of return to the nearest basis point?

Suppose you have invested only in two stocks, A and B. You expect that returns on...

Suppose you have invested only in two stocks, A and B. You expect that returns on the stocks depend on the following three states of economy, which are equally likely to happen. Show work in four decimal places and equations State of the Economy Return on Stock A Return on Stock B Recession 3.0% −6.0% Normal 6.0% 6.0% Boom 9.0% 27.0% Q. 1. Calculate the expected return of each stock. Q. 2. (a) Calculate the variance of each stock. (b)...

Question

Suppose you have $1000 to invest, and you have only two assets to choose from.

Solutions

Expert Solution

Related Solutions

Suppose you have to choose only one method to evaluate the performance of the segments of...

Imagine you have $1,000 to invest. Choose what companies you want to invest in. Use the...

Suppose you invest $1000 in an account paying 8% interest per year.

Suppose you invest $1000 in an account paying 10% interest per year.

1. Suppose that there are two risky assets to invest in. One offers a higher return...

Suppose that there are two risky assets to invest in. One offers a higher return than...

Suppose there are only two firms, firm1 and firm2, in the market. They both choose a...

Suppose there are only two firms, firm1 and firm2, in the market. They both choose a...

You have $15,000 to invest in a mutual fund. You choose a fund with a 3.5%...

Suppose you have invested only in two stocks, A and B. You expect that returns on...