Question

- Risky Asset A and Risky Asset B are combined so that the new portfolio consists of 70% Risky Asset A and 30% Risky Asset B. If the expected return and standard deviation of Asset A are 0.08 and 0.16, respectively, and the expected return and standard deviation of Asset B are 0.10 and 0.20, respectively, and the correlation coefficient between the two is 0.25: (13 pts.)

- What is the expected return of the new portfolio consisting of Assets A & B in these proportions?

- What is the standard deviation of this portfolio?

- Assuming a riskless rate of 0.06, what are the proportions of these two securities in their optimal combination of risky assets? What is the expected return of this portfolio combination?

- Assuming this optimal combination of risky assets is then combined with the riskless asset which has a return of 0.06, what standard deviation would you have to tolerate if you wanted to earn a rate of return of 0.09 from this new portfolio?

- Again assuming this optimal combination of risky assets is combined with the riskless asset, suppose you have $100,000 to invest and you choose a preferred portfolio consisting of 60% risky assets and 40% riskless assets. Under these parameters, how much of your $100,000 would you need to invest each in Asset A, Asset B, and the riskless asset?

Answer #1

You invest $100,000 in a complete portfolio. The complete
portfolio is composed of a risky asset with an expected rate of
return of 20% and a standard deviation of 30%, and a Treasury bill
with a rate of return of 8%. How much money should be invested in
the risky asset to form a portfolio with an expected return of
17%?
a. $40,000
b. $60,000
c. $75,000
d. $25,000

1. Suppose you have a portfolio that is 70% in the risk-free
asset and 30% in a stock. The stock has a standard deviation of
0.30 (i.e., 30%). What is the standard deviation of the portfolio?
A. 0.30 (i.e., 30%) B. 0.09 (i.e., 9%) C. 0.21 (i.e., 21%) D.
0
2. You have a total of $100,000 to invest in a portfolio of assets.
The portfolio is composed of a risky asset with an expected rate of
return of 15%...

Asset
Expected Return
Standard Deviation
Risky debt
6%
0.25
Equity
10%
.60
Riskless debt
4.5%
0
The coefficient of correlation between the returns on the risky
debt and equity is 0.72
2A. Using the Markowitz portfolio optimization method, what
would the composition of the optimal risky portfolio of these
assets be? 10 points
2B. What would the expected return be on this optimal
portfolio? 2 points
2C. What would the standard deviation of this optimal
portfolio be? 3 points

You invest $10,000 in a complete portfolio. The complete
portfolio is composed of a risky asset with an expected rate of
return of 20% and a standard deviation of 21% and a treasury bill
with a rate of return of 5%. How much money should be invested in
the risky asset to form a portfolio with an expected return of
8%?

There are 2 investment -- a risk-free security that returns 2%
and a risky asset that has expected return of 10% and standard
deviation of 18%.
1). What are the weights of the complete portfolio that has an
8% expected return?
2). What is the standard deviation of that portfolio?
3). If the portfolio is valued at $100,000, how much do you
invest in the risk-free security and how much do you invest in the
risky asset?

You invest $1,700 in a complete portfolio. The complete
portfolio is composed of a risky asset with an expected rate of
return of 18% and a standard deviation of 25% and a Treasury bill
with a rate of return of 9%. __________ of your complete portfolio
should be invested in the risky portfolio if you want your complete
portfolio to have a standard deviation of 12%.

You invest 40% in a risky portfolio, and 60% in a treasury bill.
The risky portfolio has an expected return of 15% and a standard
deviation of 25%. The treasury bill pays 7%. Suppose that your
risky portfolio includes the following investments in the given
proportions: Stock A 30%Stock B 30%Stock C 30%Stock D 10%(a)(3
points) What are the investment proportions in the complete
portfolio, including stock A, B, C, D and the Treasury bill? (b)(3
points) What is the...

Asset
Expected Return
Standard Deviation
Risky debt
6%
0.25
Equity
10%
.60
Riskless debt
4.5%
0
The coefficient of correlation between the returns on the risky
debt and equity is 0.72
2A. Using the Markowitz portfolio optimization method, what
would the composition of the optimal risky portfolio of these
assets be?
Please show work

You invest $1000 in a risky asset with an expected rate of
return of 0.14 and a standard deviation of 0.20 and a T-bill with a
rate of return of 0.06. The risky asset has a beta of 1.4. If you
have a risk-aversion parameter of 2.5, what is the beta of your
complete portfolio? A. 0.28 B. 0.80 C. 1.00 D. 1.12 E. 1.32

Every investor in the capital asset pricing model owns a
combination of the market portfolio and a riskless asset. Assume
that the standard deviation of the market portfolio is 30% and that
the expected return on the portfolio is 15%. What proportion of the
following investors wealth would you suggest investing in the
market portfolio and what proportion in the riskless asset? (The
riskless asset has an expected return of 5%)
A) An investor who desires a portfolio with no...

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