A hedge fund earns a mean annual return of 20% with a 10% standard deviation. One...

A hedge fund earns a mean annual return of 20% with a 10% standard deviation. One year, the fund return is -10%. What is the probability of a result bad or worse happening?Assume the distribution is symmetrical. (Hint: use Chebyshev’s Inequality).

a.) 11%

b.) 12.5%

c.) 25%

d.) 5.5%

Expert Solution

Using Chebyshev's inequality, the value of k will be = 30/20 = 1.5. Hence, the probability that will lie within 1.5 s.d. will be at least = 1 - 1/1.5^2 = 55.55%. Hence, the required probability will be = (100 - 55.55)/2 = 22.5 = 25%

Option C is correct.

jeff jeffy answered 2 years ago

Expected Return Standard Deviation Stock fund (S) 20% &nbsp

Expected Return Standard Deviation Stock fund (S) 20% 30% Bond fund (B) 12% 15% Correlation = .10 7. If you were to use only the two risky funds, and still require an expected return of 14%, what would be the investment proportions of your portfolio? Compare its standard deviation to that of the optimized portfolio in Problem 9. What do you conclude? Problem 9 Stock Expected Return Standard Deviation A 10% 5% B...

4 a) Tyler Trucks stock has an annual return mean and standard deviation of 10 percent...

4 a) Tyler Trucks stock has an annual return mean and standard deviation of 10 percent and 22 percent, respectively. Michael Moped Manufacturing stock has an annual return mean and standard deviation of 16 percent and 32 percent, respectively. Your portfolio allocates equal funds to Tyler Trucks stock and Michael Moped Manufacturing stock. The return correlation between Tyler Trucks and Michael Moped Manufacturing is 0.5. What is the smallest percentageexpected loss for your portfolio in the coming month with a...

The expected return of stock A is 20% per year and the stock's annual standard deviation...

The expected return of stock A is 20% per year and the stock's annual standard deviation is 45%. There is also a risk-free asset. When a complete portfolio is formed with a portfolio weight on the risky asset of 35%, the expected return on the complete portfolio is 8.0%. (a) Compute the risk-free rate of return. (b) Compute the annual standard deviation of the complete portfolio above (c) Compute the market price of risk (i.e., the Sharpe ratio)?

10. The population mean of annual salary for plumbers is $46,700, with a standard deviation of...

10. The population mean of annual salary for plumbers is $46,700, with a standard deviation of $5600. A random sample of 42 plumbers is drawn from this population. Find the probability that the mean salary of the sample is (a) less than $44,000. (b) between $40,000 and $51,000 (c) more than $55,000

suppose asset a has an expected return of 10% and a standard deviation of 20% asset...

suppose asset a has an expected return of 10% and a standard deviation of 20% asset b has an expected return of 16% and a standard deviation of 40%.if the correlation between a and b is 0.6,what are the expected return and standard deviation for a prtifolio comprised of 40% asset a

The expected return of market portfolio is 10%. The standard deviation of market portfolio is 20%....

The expected return of market portfolio is 10%. The standard deviation of market portfolio is 20%. Risk free interest rate is 2%. There is an investor with mean-variance utility function Answer the following questions. 1) Calculate the optimal weight to be invested in the market portfolio for the investor with A=5 . Calculate the expected return and standard deviation of the optimal complete portfolio for the investor. 2) According to the CAPM, calculate the expected returns of two stocks (stock 1...

Portfolio A has an expected return of 10% per year and a standard deviation of 20%...

Portfolio A has an expected return of 10% per year and a standard deviation of 20% per year, while the risk-free asset returns 2% per year. a. What is the expected return of a portfolio consisting the risk-free asset and portfolio A that has a standard deviation of 15%? b. What is the portfolio weight on A of a portfolio consisting the risk-free asset and portfolio A that has a standard deviation of 15%? c. What is the standard deviation...

Fund A offer an expected return of 8% with a standard deviation of 15%, and Fund...

Fund A offer an expected return of 8% with a standard deviation of 15%, and Fund B offers an expected return of 5% with a standard deviation of 25%. a. Would Fund B be held by investors?Explainwith the aid of a diagram using Markowitz Portfoliotheory.(8marks) b. How would you answer part a. if the correlation coefficient between Funds A and B were 1? Could these expected returnsand standard deviationsrepresent an equilibrium in the market?(12marks)

Unlevered mean and standard deviation: 10%, 20%. If the borrowing rate is 6%, what is the...

Unlevered mean and standard deviation: 10%, 20%. If the borrowing rate is 6%, what is the mean and standard deviation of a portfolio where the investor has $10,000 equity and borrows $10,000 for a total investment of $20,000? Using our approximation formula, what is the geometric mean for the levered portfolio? RL=_________________ ?L=_________________ Aprox.Geom.Mean=_____________

Asset 1 has an expected return of 10% and a standard deviation of 20%. Asset 2...

Asset 1 has an expected return of 10% and a standard deviation of 20%. Asset 2 has an expected return of 15% and a standard deviation of 30%. The correlation between the two assets is less than 1.0 i.e., they are not perfectly correlated. You form a portfolio by investing half of your money in asset 1 and half in asset 2. Which of the following best describes the expected return and standard deviation of your portfolio? The expected return...

Question