Question

Consider historical data showing that the average annual rate of return on the S&P 500 portfolio...

Consider historical data showing that the average annual rate of return on the S&P 500 portfolio over the past 85 years has averaged roughly 8% more than the Treasury bill return and that the S&P 500 standard deviation has been about 23% per year. Assume these values are representative of investors' expectations for future performance and that the current T-bill rate is 6%.


Calculate the utility levels of each portfolio for an investor with A = 2. Assume the utility function is U = E(r) − 0.5 × Aσ2.

Wbills WIndex U(A=2)

0

 1
.2 .8
.4 .6
.6 .4
.8 .2
1.0 0
Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

SEE THE IMAGE. ANY DOUBTS, FEEL FREE TO ASK. THUMBS UP PLEASE

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Consider historical data showing that the average annual rate of return on the S&P 500 portfolio...
Consider historical data showing that the average annual rate of return on the S&P 500 portfolio over the past 85 years has averaged roughly 8% more than the Treasury bill return and that the S&P 500 standard deviation has been about 37% per year. Assume these values are representative of investors' expectations for future performance and that the current T-bill rate is 5%. Calculate the utility levels of each portfolio for an investor with A = 2. Assume the utility...
Consider historical data showing that the average annual rate of return on the S&P 500 portfolio...
Consider historical data showing that the average annual rate of return on the S&P 500 portfolio over the past 85 years has averaged roughly 8% more than the Treasury bill return and that the S&P 500 standard deviation has been about 20% per year. Assume these values are representative of investors' expectations for future performance and that the current T-bill rate is 5%. Calculate the utility levels of each portfolio for an investor with A = 2. Assume the utility...
Consider historical data showing that the average annual rate of return on the S&P 500 portfolio...
Consider historical data showing that the average annual rate of return on the S&P 500 portfolio over the past 85 years has averaged roughly 8% more than the Treasury bill return and that the S&P 500 standard deviation has been about 38% per year. Assume these values are representative of investors' expectations for future performance and that the current T-bill rate is 5%. Calculate the utility levels of each portfolio for an investor with A = 3. Assume the utility...
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...
Portfolio Risk and Return. Suppose that the S&P 500, with a beta of 1.0, has an...
Portfolio Risk and Return. Suppose that the S&P 500, with a beta of 1.0, has an expected return of 13% and T-bills provide a risk-free return of 4%. (LO12-2) a. What would be the expected return and beta of portfolios constructed from these two assets with weights in the S&P 500 of (i) 0; (ii) .25; (iii) .5; (iv) .75; (v) 1.0? b. On the basis of your answer to (a), what is the trade-off between risk and return, that...
Suppose that the S&P 500, with a beta of 1.0, has an expected return of 10%...
Suppose that the S&P 500, with a beta of 1.0, has an expected return of 10% and Treasury bills provide a risk-free return of 4%. a. How would you construct a portfolio from these two assets with an expected return of 8%? Specifically, what will be the weights in the S&P 500 versus T-bills b. How would you construct a portfolio from these two assets with a beta of 0.4? c. Find the risk premiums of the portfolios in (a)...
An investor has created a two -asset portfolio today by purchasing $40,000 in Treasury bills and...
An investor has created a two -asset portfolio today by purchasing $40,000 in Treasury bills and $120,000 in the S&P 500 Index (market portfolio). Currently, the annual return on the Treasury bill is 2%, while investors seek 6% for the market portfolio risk premium. If the portfolio earns its required return each of the next 5 years, what will be the future value of this portfolio at the end of the 5th year? Question 21 options: $235,093 $194,664 $219,214 $131,874...
An investor has created a two -asset portfolio today by purchasing $40,000 in Treasury bills and...
An investor has created a two -asset portfolio today by purchasing $40,000 in Treasury bills and $120,000 in the S&P 500 Index (market portfolio). Currently, the annual return on the Treasury bill is 2%, while investors seek 6% for the market portfolio risk premium. If the portfolio earns its required return each of the next 5 years, what will be the future value of this portfolio at the end of the 5th year? Question 21 options: $131,874 $235,093 $178,449 $219,214...
Suppose that the S&P 500, with a beta of 1.0, has an expected return of 10%...
Suppose that the S&P 500, with a beta of 1.0, has an expected return of 10% and T-bills provide a risk-free return of 4%. a. How would you construct a portfolio from these two assets with an expected return of 8%? Specifically, what will be the weights in the S&P 500 versus T-bills? b. How would you construct a portfolio from these two assets with a beta of 0.4? c. Find the risk premiums of the portfolios in (a) and...
You estimate that a passive portfolio invested to mimic the S&P 500 stock index yields an...
You estimate that a passive portfolio invested to mimic the S&P 500 stock index yields an expected rate of return of 10% with a standard deviation of 19%. Assume you manage a risky portfolio with an expected rate of return of 12% and a standard deviation of 24%. The T-bill rate is 5%. How much could you charge as a portfolio manager before your client would be better off in the S&P 500 portfolio? Convert your answer to a percentage...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT