Question

Suppose that the risk-free rate is 6 percent and the
expected return on the market portfolio is 15

percent. An investor with $1.5 million to invest wants to achieve a
25 percent return on a

portfolio combining the risk-free asset and the market portfolio.
Calculate how much this

investor would need to borrow at the risk-free rate in order to
establish this target expected

return. Provide your final answers up to two decimal points.

Answer #1

Let weight of the risk asset be x | ||

Then weight of risk free asset = 1-x | ||

Now, | ||

25 = 15*x+6*(1-x) | ||

25 = 15*x+6-6*x | ||

19 = 9*x | ||

x = 19/9 = | 2.11 | |

Weight of the risk free asset = 1-19/9 = | -1.11 | |

Borrowings at risk free rate = 1.5*10/9 = | $1.67 | million |

VERIFICATION: | ||

Return from the risky asset = 3.17*15% = | $0.4755 | |

Less: Borrowing cost = 1.67*6% = | $0.1002 | |

Net dollar return | $0.3753 | |

% return on investment = 0.3755/1.5 = | 25.02% | |

ANSWER: | ||

Amount to be borrowed at risk free rate = | $1.67 | million |

Suppose that the risk-free rate is 6 percent and the expected
return on the market portfolio is 15 percent. An investor with $1.5
million to invest wants to achieve a 25 percent return on a
portfolio combining the risk-free asset and the market portfolio.
Calculate how much this investor would need to borrow at the
risk-free rate in order to establish this target expected return.
Provide your final answers up to two decimal points.

Suppose that the risk-free rate is 6 percent and the expected
return on the market portfolio is 15 percent. An investor with $1.5
million to invest wants to achieve a 25 percent return on a
portfolio combining the risk-free asset and the market portfolio.
Calculate how much this investor would need to borrow at the
risk-free rate in order to establish this target expected return.
Provide your final answers up to two decimal points

If the expected rate of return on the market portfolio is 14%
and the risk free rate is 6% find the beta for a portfolio that has
expected rate of return of 10%. What assumptions concerning this
portfolio and or market condition do you need to make to calculate
the portfolio’s beta? b. what percentage of this portfolio must an
individual put into the market portfolio in order to achieve an
expected return of 10%?

Suppose the risk-free
rate is 4.8 percent and the market portfolio has an expected return
of 11.5 percent. The market portfolio has a variance of .0442.
Portfolio Z has a correlation coefficient with the market
of .34 and a variance of .3345
According to the
capital asset pricing model, what is the expected return on
Portfolio Z? (Do not round intermediate calculations and
enter your answer as a percent rounded to 2 decimal places, e.g.,
32.16.)

A portfolio that combines the risk-free asset and the market
portfolio has an expected return of 7.4 percent and a standard
deviation of 10.4 percent. The risk-free rate is 4.4 percent, and
the expected return on the market portfolio is 12.4 percent. Assume
the capital asset pricing model holds.
What expected rate of return would a security earn if it had a .49
correlation with the market portfolio and a standard deviation of
55.4 percent? Enter your answer as a percent...

Q.8 Consider the following
assets:
asset
Expected return
Standard deviation
Beta
Risk-free asset
0.06
0
0
Market portfolio
0.22
0.20
1
Stock E
0.24
0.25
1.25
An investor wants to earn 24%, which one of the following
strategies is optimal? Explain why suboptimal strategies should not
be chosen.
Borrow at the risk-free rate and invest in stock E because the
risk –free asset will offset some of the risk of stock E.
Borrow at the risk-free rate and invest in...

Suppose a risk-free asset has a 3 percent return and a second
risky asset has a 15 percent expected return with a standard
deviation of 25 percent. Calculate the expected return and standard
deviation of a portfolio consisting of 15 percent of the risk-free
asset and 85 percent of the second asset. Provide your final
answers up to two decimal points

Suppose a risk-free asset has a 3 percent return and a second
risky asset has a 15 percent expected return with a standard
deviation of 25 percent. Calculate the expected return and standard
deviation of a portfolio consisting of 15 percent of the risk-free
asset and 85 percent of the second asset. Provide your final
answers up to two decimal points

The risk and the return of an investor can be reduced by adding
a risk-free Treasury bill to the market portfolio. Assume that the
standard deviation of the market portfolio is 14%, its expected
return is 12% and that you can borrow or invest at the risk-free
Treasury bill rate of 3%. If you want to reduce an investor’s risk
to a target standard deviation of 5%, what percentage of
your portfolio would you invest in the market
portfolio?

a) Suppose the risk-free rate is 4.4% and the market portfolio
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correlation coefficient with the market of 0.31
and a variance of 0.3407. According to the capital asset pricing
model, what is the beta of Portfolio Z?
What is the expected return on Portfolio Z?
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Draw the SML and comment...

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