Question

Assume that a risk-averse investor who owns shares in Minta Company decides to add shares of either Miller Ltd or Mistra Ltd to create a two-security portfolio. The expected return and standard deviation are the same for all three shares. The correlation of returns between Minta and Miller is -0.06; while, the correlation of returns between Minta and Mistra is +0.06.

Which of the following statements is/are true? Explain why.

(i) Portfolio risk is expected to decline more when the investor buys Miller shares.

(ii) Portfolio risk is expected to decline more when the investor buys Mistra shares.

(iii) Portfolio risk is expected to increase when either Miller or Mistra shares are bought.

(iv) Portfolio risk is expected to either decrease or increase because it depends on various other factors.

Answer #1

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

You are a risk averse investor. You are willing to add an
investment with high volatility provided the correlation
coefficient of this investment with other stocks in the portfolio
is not less than +1.
True
False
10 points
The stock A has 25% standard deviation on its expected return
and the stock B has 25% standard deviation on its expected return.
The expected return for the portfolio of these two stocks will have
a standard deviation of 25%.
True...

You are a risk-averse investor. Investment A has E(r) =12% and
standard deviation = 18%.
Investment B has standard deviation = 24% and has end of year
cash flows of either $84,000
or $144,000 with equal probability. At what price for Investment
B would you be indifferent
between A and B? Hint: think about individual security selection
statistic...not portfolio.

Greta, an elderly investor, has a degree of risk aversion of
A = 5 when applied to return on wealth over a one-year
horizon. She is pondering two portfolios, the S&P 500 and a
hedge fund, as well as a number of 1-year strategies. (All rates
are annual and continuously compounded.) The S&P 500 risk
premium is estimated at 10% per year, with an SD of 16%. The hedge
fund risk premium is estimated at 8% with an SD of...

Greta, an elderly investor, has a degree of risk aversion of
A = 5 when applied to return on wealth over a one-year
horizon. She is pondering two portfolios, the S&P 500 and a
hedge fund, as well as a number of 1-year strategies. (All rates
are annual and continuously compounded.) The S&P 500 risk
premium is estimated at 9% per year, with a SD of 17%. The hedge
fund risk premium is estimated at 9% with a SD of...

Greta, an elderly investor, has a degree of risk aversion of
A = 3 when applied to return on wealth over a one-year
horizon. She is pondering two portfolios, the S&P 500 and a
hedge fund, as well as a number of one-year strategies. (All rates
are annual and continuously compounded.) The S&P 500 risk
premium is estimated at 6.6% per year, with a SD of 21.6%. The
hedge fund risk premium is estimated at 11.6% with a SD of...

Greta, an elderly investor, has a degree of risk aversion of
A = 3 when applied to return on wealth over a one-year
horizon. She is pondering two portfolios, the S&P 500 and a
hedge fund, as well as a number of one-year strategies. (All rates
are annual and continuously compounded.) The S&P 500 risk
premium is estimated at 5.4% per year, with a SD of 20.4%. The
hedge fund risk premium is estimated at 10.4% with a SD of...

Greta, an elderly investor, has a degree of risk aversion of
A = 3 when applied to return on wealth over a one-year
horizon. She is pondering two portfolios, the S&P 500 and a
hedge fund, as well as a number of one-year strategies. (All rates
are annual and continuously compounded.) The S&P 500 risk
premium is estimated at 6.6% per year, with a SD of 21.6%. The
hedge fund risk premium is estimated at 11.6% with a SD of...

Greta, an elderly investor, has a degree of risk aversion of
A = 3 when applied to return on wealth over a one-year
horizon. She is pondering two portfolios, the S&P 500 and a
hedge fund, as well as a number of one-year strategies. (All rates
are annual and continuously compounded.) The S&P 500 risk
premium is estimated at 5.2% per year, with a SD of 20.2%. The
hedge fund risk premium is estimated at 10.2% with a SD of...

Greta, an elderly investor, ha a degree of risk aversion of A=4
when applied to return on wealth over a one-year horizon. She is
pondering two portfolios, the S &P 500 and a hedge fund, as
well as a number of 1 year strategies (all rates are annual and
continuously compounded). The S&P 500 risk premium is estimated
at 5% per year with a SD of 17%. The hedge fund premium is
estimated at 9% with a SD of 34%....

Choose either Question 1 OR Question 2. If you answer
more than 1 question, you will get the mark from the question with
lower mark only. The question carries 8.75 marks.
Question 1
A back-end load fund had US$200 million net assets and 10 million
shares outstanding at the beginning of 2019. At the end of 2019,
there was US$260 million net assets and 12 million shares
outstanding. During the year, the fund distributed US0.75 dividend
per share.
a. What...

ADVERTISEMENT

Get Answers For Free

Most questions answered within 1 hours.

ADVERTISEMENT

asked 47 seconds ago

asked 5 minutes ago

asked 8 minutes ago

asked 19 minutes ago

asked 36 minutes ago

asked 39 minutes ago

asked 46 minutes ago

asked 54 minutes ago

asked 56 minutes ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago