Question
In: Finance
Which is the optimal return combination for both the US/UK and US Spain? US UK SPAIN...
Which is the optimal return combination for both the US/UK and US Spain?
| US | UK | SPAIN | CH13 | INTERNATIONAL PORTFOLIO DIVERSIFICATION ANALYSIS | |||||||||
| ER | 15% | 12% | 5% | DEVELOPED VS EMERGING MARKET DIVERSIFICATION | |||||||||
| STD | 10% | 9% | 4% | CAN-β= | CAN$ rose by | COL Peso fell by | |||||||
| CORR | 1 | 0.33 | 0.06 | COL-β= | US&CAN* $Ret= | US&COL* $Ret | |||||||
| CV | 1.5 | 1.3333 | 1.25 | ||||||||||
| Weights | W1 | 100% | 90% | 80% | 70% | 60% | 50% | 40% | 30% | 20% | 10% | 0% | |
| W2 | 0% | 10% | 20% | 30% | 40% | 50% | 60% | 70% | 80% | 90% | 100% | ||
| US&UK | ER | 15.00% | 14.70% | 14.40% | 14.10% | 13.80% | 13.50% | 13.20% | 12.90% | 12.60% | 12.30% | 12.00% | |
| STD | 10.0% | 9.34% | 8.76% | 8.29% | 7.95% | 7.75% | 7.71% | 7.82% | 8.08% | 8.48% | 9.00% | ||
| US&SPAIN | ER | 15.00% | 14.00% | 13.00% | 12.00% | 11.00% | 10.00% | 9.00% | 8.00% | 7.00% | 6.00% | 5.00% | |
| STD | 10.00% | 9.03% | 8.09% | 7.17% | 6.30% | 5.50% | 4.79% | 4.22% | 3.87% | 3.79% | 4.00% | ||
Solutions
Expert Solution
An optimal-risk portfolio is typically somewhere in the middle of the curve of returns and volatility, owing to the fact that the higher you go up the curve, the greater the proportion of risk you take on to the potential of return. On the other end, low risk/ low return portfolios have generally been considered a waste of time, as one can achieve a similar return by simply investing in risk-free securities and assets, like government bonds or sovereign treasuries.
An individual investor can determine how much volatility he or she is willing to maintain in his other portfolio by picking another point which lies along the so-called efficient frontier. An investor looks out for maximum returns for the amount of risk that he can handle.
In case the expected returns are given then we can compute the return per risk unit using Sharpe & Treynor Ratio and take a decision.
However, in the above scenario, US & UK at 40% & 60% as well as US & Spain at 10% and 90% should not be blindly taken to since it minimizes risk. We should consider the return per risk unit and take a decision.
For computing Return per risk unit we will divide the return in each scenario by the Standard Deviation
| Weights | W1 | 100% | 90.0% | 80.0% | 70.0% | 60.0% | 50.0% | 40.0% | 30.0% | 20.0% | 10.0% | 0.0% |
| W2 | 0% | 10.0% | 20.0% | 30.0% | 40.0% | 50.0% | 60.0% | 70.0% | 80.0% | 90.0% | 100.0% | |
| US & UK | ER | 15.00% | 14.70% | 14.40% | 14.10% | 13.80% | 13.50% | 13.20% | 12.90% | 12.60% | 12.30% | 12.00% |
| STD | 10.00% | 9.34% | 8.76% | 8.29% | 7.95% | 7.75% | 7.71% | 7.82% | 8.08% | 8.48% | 9.00% | |
| 1.50 | 1.57 | 1.64 | 1.70 | 1.74 | 1.74 | 1.71 | 1.65 | 1.56 | 1.45 | 1.33 | ||
| US & Spain | ER | 15.00% | 14.00% | 13.00% | 12.00% | 11.00% | 10.00% | 9.00% | 8.00% | 7.00% | 6.00% | 5.00% |
| STD | 10.00% | 9.03% | 8.09% | 7.17% | 6.30% | 5.50% | 4.79% | 4.22% | 3.87% | 3.79% | 4.00% | |
| 1.50 | 1.55 | 1.61 | 1.67 | 1.75 | 1.82 | 1.88 | 1.90 | 1.81 | 1.58 | 1.25 |
Hence, We should choose 50% - 50% distribution for US & UK and 30% - 70% for US & Spain portfolio, since it maximises return per risk unit.
jeff jeffy answered 2 years agoRelated Solutions
In python, Here's some fake data. df = {'country': ['US', 'US', 'US', 'US', 'UK', 'UK', 'UK'],...
In python,
Here's some fake data.
df = {'country': ['US', 'US', 'US', 'US', 'UK', 'UK',
'UK'],
'year': [2008, 2009, 2010, 2011, 2008, 2009,
2010],
'Happiness': [4.64, 4.42, 3.25, 3.08, 3.66, 4.08,
4.09],
'Positive': [0.85, 0.7, 0.54, 0.07, 0.1, 0.92,
0.94],
'Negative': [0.49, 0.09, 0.12, 0.32, 0.43, 0.21,
0.31],
'LogGDP': [8.66, 8.23, 7.29, 8.3, 8.27, 6.38,
6.09],
'Support': [0.24, 0.92, 0.54, 0.55, 0.6, 0.38,
0.63],
'Life': [51.95, 55.54, 52.48, 53.71, 50.18, 49.12,
55.84],
...
Bob lives in the UK, but works in both Germany and in the UK. In 2019...
Bob lives in the UK, but works in both Germany and in the UK. In
2019 he earned 40,000 euros in Germany, and 30,000 euros in the UK.
In Germany the income tax rate is 45%.
2.1. How much tax would be due from Bob in the
UK on his annual income for 2019 if the UK income tax rate was 20%
and any double taxation would be eliminated using ordinary
credit?
2.2. How much tax would be due from Bob in...
Bob lives in the UK, but works in both Germany and in the UK. In 2019...
Bob lives in the UK, but works in both Germany and in the UK. In
2019 he earned 40,000 euros in Germany, and 30,000 euros in the UK.
In Germany the income tax rate is 45%.
2.1. How much tax would be due from Bob in the UK on his annual
income for 2019 if the UK income tax rate was 20% and any double
taxation would be eliminated using ordinary credit?
2.2. How much tax would be due from...
Bob lives in the UK, but works in both Germany and in the UK. In 2019...
Bob lives in the UK, but works in both Germany and in the UK. In
2019 he earned 40,000 euros in Germany, and 30,000 euros in the UK.
In Germany the income tax rate is 45%.
2.1. How much tax would be due from Bob in the
UK on his annual income for 2019 if the UK income tax rate was 20%
and any double taxation would be eliminated using ordinary
credit?
2.2. How much tax would be due from Bob in...
What does Uk < Us mean?
What does
Uk
<
Us
mean?
Regime Type France Spain UK Total Dictatorship 16 5 18 39 Parliamentary...
Regime Type France Spain UK Total
Dictatorship 16 5 18
39
Parliamentary Democracy 0 2 13
15
Presidential Democracy 3 13 9 25
Total 19 20 40 79
(i) CALCULATE LAMBDA FOR THIS TABLE. SHOW YOUR WORK.
(iii) STATE WHETHER THE RELATIONSHIP IS WEAK, MODERATE,
MODERATELY STRONG, OR STRONG.
discuss the current health policies of UK and US using relevant theoretical concepts and ideologies which...
discuss the current health policies of UK and US using
relevant theoretical concepts and ideologies which inform public
health policy and practice.
(You can use these points for assignment: Current
health policies, health policies regarding COVID-19, compare and
contrast the two countries)
An experiment is to be carried out to determine the optimal combination of microwave oven settings...
An experiment is to be carried out to determine the optimal
combination of microwave oven
settings for microwave popcorn. Cooking time has three possible
settings (3,4, and 5 minutes)
and cooking power has two settings (low power, high power). The
response (to be minimized)
is the number of burned plus the number of unpopped kernels.
a. Identify the experimental unit.
b. Identify the experimental factor(s), levels, and any
factor-level combinations if present
Create a labeled isoquant diagram to show the impact on the optimal combination of labor and...
Create a labeled isoquant diagram to show the impact on the
optimal combination of labor and capital if the wage rate rises
when labor and capital are substitutes for each other.
What is the differences between UK and US balance sheet?
What is the differences between UK and US balance sheet?
ADVERTISEMENT
ADVERTISEMENT
Latest Questions
- you may not use the Python ord() or chr() functions you may not use the Python...
- Question 3: What is Function? Explain with examples. Provide at least 2 program examples.
- Journal Entries and Trial Balance On October 1, 2018, Jay Pryor established an interior decorating business,...
- 3. One of Argentina's priorities should be to fight inflation said the International Monetary Fund (IMF)...
- C++ programming interest using for loops. I'm fairly new to C++ programming. I really don't get...
- Suppose a stock had an initial price of $69 per share, paid a dividend of $1.95...
- Write a class encapsulating the concept of a student, assuming a student has the following attributes:...
ADVERTISEMENT