You are trying to construct a mimicking portfolio using 3 assets. The target Beta on your...

You are trying to construct a mimicking portfolio using 3 assets. The target Beta on your portfolio is -1.5. Asset 1 has a beta of 0, Asset 2 has a Beta of 1 and Asset 3 has a Beta of 2.5. You are required to hold 10% of your mimicking portfolio in Asset 3.

The resulting weights for the other two assets in the mimicking portfolio are w(asset 1) = _________ % and w(asset 2) = _______%

Solutions

Expert Solution

jeff jeffy answered 1 year ago

Next > < Previous

Related Solutions

You are trying to allocate your assets into a risky portfolio and the purchase of a...

You are trying to allocate your assets into a risky portfolio and the purchase of a risk free asset with a return of 2%. You use the following data to estimate information about the risky portfolio: Year Return 2014 -15% 2015 -5% 2016 30% 2017 -10% 2018 35% If you have a risk-aversion factor of 2.5, what percentage of your total portfolio should be in the risky portfolio?

You are managing a portfolio of $1 million. Your target duration is 3 years, and you...

You are managing a portfolio of $1 million. Your target duration is 3 years, and you can choose from two bonds: a zero-coupon bond with time to maturity of 5 years, and a bond with an annual coupon rate of 8% and time to maturity of 2 years, both with yield to maturity of 5%. Assume both bonds have a face value of $1000. (a) how much of each bond will you hold in your portfolio (b) how will these...

Question # 3. Markowitz theory indicates to create and construct a portfolio of assets to maximize...

Question # 3. Markowitz theory indicates to create and construct a portfolio of assets to maximize returns within a given level of risk, or to devise one with a desired, specified and expected level of return with the least amount of risk. Under this broader concept, answer the followings: a) Justify, why an optimal portfolio should lie on security market line curve b) Being an efficient market investor, justify how an efficient frontier curve can be helpful for you in...

How would you construct a diversified portfolio with a beta of .25? What is the expected...

How would you construct a diversified portfolio with a beta of .25? What is the expected return to this strategy? Assume Treasury bills yield 3% and the market risk premium is 7%.

Suppose you are managing an equity portfolio with a beta of 0.8 and $15M in assets....

Suppose you are managing an equity portfolio with a beta of 0.8 and $15M in assets. S&P 500 index futures with a multiplier of 250 (not the e-mini futures) are currently priced at 1,057, and the index is also 1,057. What position in index futures is necessary to increase the portfolio beta to 1.4?

You have been assigned to construct an optimal portfolio comprising two risky assets (Portfolios A &...

You have been assigned to construct an optimal portfolio comprising two risky assets (Portfolios A & B) while considering your client’s risk tolerance. The attached spread sheet shows historical monthly returns of the two portfolios; the S&P 500 index; and 90-day Treasury Bills. Also shown are the annualized returns for each for the period specified. The first risky asset (Portfolio A) is a US equity strategy that uses publically available valuation, technical and sentiment factors to assess which stocks are...

You are managing a portfolio of $2.1 million. Your target duration is 10 years, and you...

You are managing a portfolio of $2.1 million. Your target duration is 10 years, and you can choose from two bonds: a zero-coupon bond with maturity 5 years, and a perpetuity, each currently yielding 5%. Required: (a) How much of each bond will you hold in your portfolio? (Round your answers to 4 decimal places.) Zero-coupon bond Perpetuity bond (b) How will these fractions change next year if target duration is now nine years? (Round your answers to...

You are managing a portfolio of $1 million. Your target duration is 10 years, and you...

You are managing a portfolio of $1 million. Your target duration is 10 years, and you can invest in two bonds, a zero-coupon bond with maturity of five years and a perpetuity, each currently yielding 5.2%. a. What weight of each bond will you hold to immunize your portfolio? (Round your answers to 2 decimal places.) Zero-coupon bond % Perpetuity bond % b. How will these weights change next year if target duration is now nine years? (Round your answers...

You are managing a portfolio of $1 million. Your target duration is 10 years, and you...

You are managing a portfolio of $1 million. Your target duration is 10 years, and you can invest in two bonds, a zero-coupon bond with maturity of five years and a perpetuity, each currently yielding 5.5%. a. What weight of each bond will you hold to immunize your portfolio? (Round your answers to 2 decimal places.) b. How will these weights change next year if target duration is now nine years?

You are managing a portfolio of $1.0 million. Your target duration is 15 years, and you...

You are managing a portfolio of $1.0 million. Your target duration is 15 years, and you can choose from two bonds: a zero-coupon bond with maturity five years, and a perpetuity, each currently yielding 5%. a. How much of (i) the zero-coupon bond and (ii) the perpetuity will you hold in your portfolio? Zero-coupon bond ___ % Perpetuity bond ____ % How will these fractions change next year if target duration is now fourteen years? Zero-coupon bond ___ % Perpetuity...

Subjects