Question
In: Finance
Refer the table below on the average risk premium of the S&P 500 over T-bills and...
Refer the table below on the average risk premium of the S&P 500 over T-bills and the standard deviation of that risk premium. Suppose that the S&P 500 is your risky portfolio.
| Average Annual Returns | S&P 500 Portfolio | ||||||||||||||||||
| Period | S&P 500 Portfolio |
1-Month T-Bills |
Risk Premium |
Standard Deviation |
Sharpe Ratio |
||||||||||||||
| 1926–2015 | 11.77 | 3.47 | 8.30 | 20.59 | 0.40 | ||||||||||||||
| 1992–2015 | 10.79 | 2.66 | 8.13 | 18.29 | 0.44 | ||||||||||||||
| 1970–1991 | 12.87 | 7.54 | 5.33 | 18.20 | 0.29 | ||||||||||||||
| 1948–1969 | 14.14 | 2.70 | 11.44 | 17.67 | 0.65 | ||||||||||||||
| 1926–1947 | 9.25 | 0.91 | 8.33 | 27.99 | 0.30 | ||||||||||||||
a. If your risk-aversion coefficient is A = 4 and you believe that the entire 1926–2015 period is representative of future expected performance, what fraction of your portfolio should be allocated to T-bills and what fraction to equity? Assume your utility function is U = E(r) – 0.5 × Aσ2. (Do not round intermediate calculations. Round your answers to 2 decimal places.)
b. If your risk-aversion coefficient is A = 4 and you believe that the entire 1970–1991 period is representative of future expected performance, what fraction of your portfolio should be allocated to T-bills and what fraction to equity? (Do not round intermediate calculations. Round your answers to 2 decimal places.)
Solutions
jeff jeffy answered 1 year agoRelated Solutions
Why is S&P 500 a good proxy for the implied equity risk premium (ERP) estimation?
Why is S&P 500 a good proxy for the implied equity risk
premium (ERP) estimation?
The following table shows the annual returns over a six year period for the S&P 500...
The following table shows the annual
returns over a six year period for the S&P 500 market index and
MCH, Inc. Assume that the historical information represents a
population. Use this data to calculate the correlation between both
sets of security returns. Discuss your findings.
Year
S&P
500
MCH,
Inc.
2013
0.15
0.37
2014
0.13
0.09
2015
0.14
-0.11
2016
-0.09
0.08
2017
0.12
0.11
2018
0.09
0.04
Please show me each step. Thank you
The following table shows the annual returns over a six year period for the S&P 500...
The following table shows the annual
returns over a six year period for the S&P 500 market index and
MCH, Inc. Assume that the historical information represents a
population. Use this data to calculate the correlation between both
sets of security returns. Discuss your findings.
Year
S&P
500
MCH,
Inc.
2013
0.15
0.37
2014
0.13
0.09
2015
0.14
-0.11
2016
-0.09
0.08
2017
0.12
0.11
2018
0.09
0.04
The expected return of the S&P 500 = 11% and the risk = 22%. The risk...
The expected return of the S&P 500 = 11% and the risk = 22%.
The risk free rate = 5%. Assume you have a very, very highly risk
averse person whose A = 1,000. How much of the person’s wealth
would be in stocks and how much in T-Bills?
Table 3 (below) shows annual returns for the S&P 500 for the years 2000-2016: Table 3:...
Table 3 (below) shows annual returns for the S&P 500 for
the years 2000-2016:
Table 3: Annual Returns
Year
Returns
2000
-9.0%
2001
-11.9%
2002
-22.0%
2003
28.4%
2004
10.7%
2005
4.8%
2006
15.6%
2007
5.5%
2008
-36.6%
2009
25.9%
2010
14.8%
2011
2.1%
2012
15.9%
2013
32.2%
2014
13.5%
2015
1.4%
2016
11.7%
Calculate:
The cumulative return over the 17 years;
The average annual return;
The standard deviation;
The Sharpe Ratio (assuming a risk free rate of 2.3% on...
The risk-free rate, average returns, standard deviations, and betas for three funds and the S&P 500...
The risk-free rate, average returns, standard deviations, and
betas for three funds and the S&P 500 are given below.
FUND
AVG
STD DEV
BETA
A
18%
30%
1.05
B
25%
35%
1.3
C
20%
25%
1.2
S&P 500
15%
20%
1.0
Rf
5%
If these portfolios are subcomponents that make up part of a
well-diversified portfolio, then portfolio ______ is preferred.
a. fund a
b. fund b
c. fund c
d. s&p 500
1) Use the below table of share price for TSLA and index level for the S&P 500...
1) Use the below table of share price for
TSLA and index level for the S&P 500 for the CAPM questions
that follow related to TSLA. You can copy this table and paste it
completely into Excel to avoid typing it out. Calculate the beta of
TSLA.
Date
TSLA
S&P 500
10/1/2018
67.464
2711.74
11/1/2018
70.096
2760.17
12/1/2018
66.56
2506.85
1/1/2019
61.404
2704.1
2/1/2019
63.976
2784.49
3/1/2019
55.972
2834.4
4/1/2019
47.738
2945.83
5/1/2019
37.032
2752.06
6/1/2019
44.692
2941.76
7/1/2019
48.322
2980.38...
Use the following table to complete questions 1-3. S&P 500 returns and the risk-free rate of...
Use the following table to complete questions 1-3. S&P 500
returns and the risk-free rate of return can take on the following
possible values with the given probabilities.
State Pi S&P 500 Returns Risk-Free Rate
Recession 0.25 -10% 8%
Low Pullback 0.25 -5% 8%
No Growth 0.25 0% 8%
Low Growth 0.25 5% 8%
1. What is the expected value of S&P 500 returns? What is the
expected value of risk-free returns?
2. What is the variance and standard deviation...
The risk-free rate, S&P 500 index, and the average return, standard deviation, beta, and residual standard...
The risk-free rate, S&P 500 index, and the average return,
standard deviation, beta, and residual standard deviation for three
funds are given.
Fund
Avg. Return
Std. Dev.
Beta
Residual Std. Dev.
A
B
C
S&P 500
Risk-free
18
25
22
12
4
15
30
20
10
0
1.3
1.4
1.2
1.0
0
1.5
2.5
3.0
1.Figure out the M2 measure for Fund A and B
2.Figure out the best fund based on the information ratio
Use the following table.
Your...
The risk-free rate, S&P 500 index, and the average return, standard deviation, beta, and residual standard...
The risk-free rate, S&P 500 index, and the average return,
standard deviation, beta, and residual standard deviation for three
funds are given.
Fund
Avg. Return
Std. Dev.
Beta
Residual Std. Dev.
A
B
C
S&P 500
Risk-free
18
25
22
12
4
15
30
20
10
0
1.3
1.4
1.2
1.0
0
1.5
2.5
3.0
Figure out the M2 measure
for Fund A and B.
Figure out the best fund based on the information
ratio.
Use the following table.
Your...
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