Question
In: Finance
You have just decided upon your capital allocation for the rest of the year, say investing...
You have just decided upon your capital allocation for the rest of the year, say investing 25% in the risk free money market (T-bills) and 75% in the risky capital market, when you realize that you were too optimistic about the risky capital market assetís return: while your estimate of its risk (standard deviation) was sound, you over-estimated its expected return. Will you adjust your capital allocation decision by increasing, decreasing, or leaving unchanged your allocation to the risk-free T-bills? Please draw the Capital Allocation Line (CAL) to answer this question.
Solutions
jeff jeffy answered 1 year agoRelated Solutions
You’ve just decided upon your capital allocation for the next year. You believe the expected return...
You’ve just decided upon your capital allocation for the next
year. You believe the expected return should be 10% and the
standard deviation is 28%. The risk-free rate is 5%. As the market
moves, you would like to raise the expected return, lower the
standard deviation of your risky portfolio, and adjust the
risk-free rate to 4%. Will you increase or decrease your allocation
to your risky portfolio given the same expected return?
When the risk-free rate increases because of...
You've just decided upon your capital allocation for the next year. You believe the expected return...
You've just decided upon your capital allocation for the next
year. You believe the expected return should be 10% and the
standard deviation is 28%. The risk-free rate is 5%. As the market
moves, you would like to raise the expected return, lower the
standard deviation of your risky portfolio, and adjust the
risk-free rate to 4%.
a)Will you increase or decrease your allocation in the risky
portfolio given the same expected return?
b) When the risk-free rate increases from...
draw diagrams and explain it a) You’ve just decided upon your capital allocation for the next...
draw diagrams and explain it
a) You’ve just decided upon your capital allocation for the next
year. You believe the expected return should be 10% and the
standard deviation is 28%. The risk-free rate is 5%. As the market
moves, you would like to raise the expected return, lower the
standard deviation of your risky portfolio, and adjust the
risk-free rate to 4%. Will you increase or decrease your allocation
to your risky portfolio given the same expected return?
b)...
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