Question

You can invest your money either in risk-free government bonds that yield 3% per year, or you can buy a well- diversified index fund that has an expected return of 10% and a standard deviation of 25%. Since the index fund resembles the market portfolio, assume that the beta of this fund is 1.

**a) Suppose you want to create a portfolio with an
expected return of 8% (by investing in government bonds and the
index fund). What would be the standard deviation and the beta of
such a portfolio?**

**Select one:**

The portfolio standard deviation is 17.9%; the beta of the portfolio is 0.71

The portfolio standard deviation is 12.5%; the beta of the portfolio is 0.50

The portfolio standard deviation is 7.1%; the beta of the portfolio is 0.29

The portfolio standard deviation is 3.2%; the beta of the portfolio is 0.71

The portfolio standard deviation is 3.2%; the beta of the portfolio is 0.50

The portfolio standard deviation is 13.9%; the beta of the portfolio is 0.49

The portfolio standard deviation is 50%; the beta of the portfolio is 2.00

The portfolio standard deviation is 0%; the beta of the portfolio is 0

**b) If you have $10,000 to invest and you want to create
a portfolio consisting of government bonds and index funds that has
half the systematic risk of the market portfolio, what would be the
expected return and standard deviation of your
portfolio?**

**Select one:**

The expected return is 10%; the standard deviation is 25%

The expected return is 5%; the standard deviation is 12.5%

The expected return is 8%; the standard deviation is 12.5%

The expected return is 6.5%; the standard deviation is 12.5%

The expected return is 10%; the standard deviation is 20%

The expected return is 8%; the standard deviation is 25%

The expected return is 6.5%; the standard deviation is 25%

The expected return is 10%; the standard deviation is 0%

Answer #1

1.

Let proportion in index fund be w and in government bonds be
1-w

Hence,

w*10%+(1-w)*3%=8%

=>w=5/7

Standard Deviation=5/7*25%=17.8571429%

Beta=5/7*1=0.714285714

The portfolio standard deviation is 17.9%; the beta of the portfolio is 0.71

2.

Let proportion in index fund be w and in government bonds be
1-w

Hence,

w*1=0.5*1

=>w=0.5

Expected returns=0.5*10%+0.5*3%=6.5%

Standard Deviation=0.5*25%=12.5%

The expected return is 6.5%; the standard deviation is 12.5%

Intro
You want to invest in either a stock or Treasury bills (the
risk-free asset). The stock has an expected return of 6% and a
standard deviation of returns of 34%. T-bills have a return of
2%.
Attempt 1/1 for 10 pts.
Part 1
If you invest 70% in the stock and 30% in T-bills, what is your
expected return for the complete portfolio?
Move on
Attempt 1/1 for 10 pts.
Part 2
What is the standard deviation of returns...

You wish to invest in two hedge funds: Eldorado and Shangrila.
The expected return on the Eldorado hedge fund is 12% and the
standard deviation of this return is 16%. The expected return on
the Shangrila hedge fund is 20% and its standard deviation is 25%.
The covariance between returns on the Eldorado fund and Shangrila
fund is 80(%)^2. What percentage of your wealth should you invest
in each of these two funds to earn 18% expected return on your...

The market is expected to yield 12% and the risk free rate is
2%. You currently hold a portfolio with a beta of 0.75 worth
$25,000. You want to invest in another portfolio with a beta of
2.9. How much will you have to invest in the new risky asset so
that the resulting portfolio will have an expected return of
16%?

You have $110,000 to invest in a portfolio containing Stock X,
Stock Y, and a risk-free asset. You must invest all of your money.
Your goal is to create a portfolio that has an expected return of
10 percent and that has only 74 percent of the risk of the overall
market. If X has an expected return of 30 percent and a beta of
2.0, Y has an expected return of 20 percent and a beta of 1.2, and...

consider the following information about a stock fund and a
risk-free asset: E(rp) = 12.5% op = 16% rf = 3.5% (28) you want to
invest a proportion of your total investment budget in the stock
fund to provide an expected rate of return on you overall or
complete portfolio equal to 5%. what proportion should you invest
in the stock fund, P, and what proportion in the risk-free asset?
what is the standard deviation of the rate of return...

You have recently decided to invest your money in a bond fund.
This fund has an expected return of 8%, and a standard deviation of
11%.
You have been considering investing in a fund that tracks the
Russell 2000 index, which has an expected return of 15%, and a
standard deviation of 17%.
The current T-Bill rate is 3%
You feel that the bond fund does not provide you with enough
return, and you are uncomfortable with the risk of...

You have $110,000 to invest in a portfolio containing Stock X,
Stock Y, and a risk-free asset. You must invest all of your money.
Your goal is to create a portfolio that has an expected return of
10 percent and that has only 74 percent of the risk of the overall
market. If X has an expected return of 30 percent and a beta of
2.0, Y has an expected return of 20 percent and a beta of 1.2, and...

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?

1) Suppose you have $100,000 to invest in a PORTFOLIO OF TWO
stocks: Stock A and Stock B. Your analysis of the two stocks led to
the following risk -return statistics:
Expected Annual Return
Beta
Standard Deviation
A
18%
1.4
25%
B
12%
0.6
16%
The expected return on the market portfolio is 7% and the risk
free rate is 1%. You want to create a portfolio with NO MARKET
RISK.
a) How much (IN DOLLARS) should you invest IN...

Suppose you invest 30% of your money in Security A and the rest
in Security B
Security A
Security B
Expected return
15%
10%
Standard Deviation
0.25
0.17
Beta
1.3
1.1
Correlation coefficient
between A and B
0.5
A. What is the expected return of the portfolio?
B. What is the portfolio beta?
C. What is the portfolio variance? Compare it with A and B
variances. Is the portfolio variance larger or smaller than either
A or B variances and...

ADVERTISEMENT

Get Answers For Free

Most questions answered within 1 hours.

ADVERTISEMENT

asked 6 minutes ago

asked 13 minutes ago

asked 29 minutes ago

asked 35 minutes ago

asked 54 minutes ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago