EBK INVESTMENTS
11th Edition
ISBN: 9781259357480
Author: Bodie
Publisher: MCGRAW HILL BOOK COMPANY
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Chapter 6, Problem 18PS
a
Summary Introduction
Adequate information:
Expected rate of
Standard deviation of the risky asset=28%
Complete portfolio’s standard deviation will not increase beyond 18%.
T-bill rate is 8%
Client decides to invest in your portfolio in the proportion Y
Overall portfolio’s expected rate of return =16%
To compute: The proportion of Y
Introduction:
Risky Portfolio: When there is a chance of non-accomplishment of financial objectives of an investment in a unit or combination of assets, it is termed as risky portfolio. A higher risk always carries higher return.
b
Summary Introduction
Adequate information:
Expected
Standard deviation of the risky asset=28%
T-bill rate is 8%
Client decides to invest in your portfolio in the proportion Y
Overall portfolio’s expected rate of return =16%
Complete portfolio’s standard deviation will not increase beyond 18%.
To compute: The expected rate of return on the complete portfolio.
Introduction:
Expected return of the portfolio: It is also called as weighted average expected return. So, it is must to consider both the weights and the expected return of both stocks.
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Consider the following information about a risky portfolio that you manage and a risk-free asset: E(rp) = 8%, op = 15%, rf = 2%.
Required:
a. Your client wants to invest a proportion of her total investment budget in your risky fund to provide an expected rate of return on
her overall or complete portfolio equal to 8%. What proportion should she invest in the risky portfolio, P, and what proportion in the
risk-free asset?
b. What will be the standard deviation of the rate of return on her portfolio?
c. Another client wants the highest return possible subject to the constraint that you limit his standard deviation to be no more than
12%. Which client is more risk averse?
Complete this question by entering your answers in the tabs below.
Required A Required B
Required C
Risky portfolio
Risk-free asset
Answer is complete but not entirely correct.
Your client wants to invest a proportion of her total investment budget in your risky fund to provide an expected rate of return
on her overall…
Consider the following information about a risky portfolio that you manage and a risk-free asset: E(rp) = 11%, op = 12%, rf =,2%.
Required:
a. Your client wants to invest a proportion of her total investment budget in your risky fund to provide an expected rate of return on
her overall or complete portfolio equal to 7%. What proportion should she invest in the risky portfolio, P, and what proportion in the
risk-free asset?
b. What will be the standard deviation of the rate of return on her portfolio?
c. Another client wants the highest return possible subject to the constraint that you limit his standard deviation to be no more than
17%. Which client is more risk averse?
Complete this question by entering your answers in the tabs below.
Required A Required B
Required C
Your client wants to invest a proportion of her total investment budget in your risky fund to provide an expected rate of return
on her overall or complete portfolio equal to 7%. What proportion should she invest in the…
You manage a risky portfolio with an expected rate of return of 18% and a standard deviation of 29%. The T-bill rate is 5%.
Suppose that your client prefers to invest in your fund a proportion y that maximizes the expected return on the complete portfolio
subject to the constraint that the complete portfolio's standard deviation will not exceed 18%.
a. What is the investment proportion, y? (Round your answer to 2 decimal places.)
Investment proportion y
%
b. What is the expected rate of return on the complete portfolio? (Do not round intermediate calculations. Round your answer to 2
decimal places.)
Rate of return
%
Chapter 6 Solutions
EBK INVESTMENTS
Ch. 6.A - Prob. 1PCh. 6.A - Prob. 2PCh. 6 - Prob. 1PSCh. 6 - Prob. 2PSCh. 6 - Prob. 3PSCh. 6 - Prob. 4PSCh. 6 - Prob. 5PSCh. 6 - Prob. 6PSCh. 6 - Prob. 7PSCh. 6 - Prob. 8PS
Ch. 6 - Prob. 9PSCh. 6 - Prob. 10PSCh. 6 - Prob. 11PSCh. 6 - Prob. 12PSCh. 6 - Prob. 13PSCh. 6 - Prob. 14PSCh. 6 - Prob. 15PSCh. 6 - Prob. 16PSCh. 6 - Prob. 17PSCh. 6 - Prob. 18PSCh. 6 - Prob. 19PSCh. 6 - Prob. 20PSCh. 6 - Prob. 21PSCh. 6 - Prob. 22PSCh. 6 - Prob. 23PSCh. 6 - Prob. 24PSCh. 6 - Prob. 25PSCh. 6 - Prob. 26PSCh. 6 - Prob. 27PSCh. 6 - Prob. 28PSCh. 6 - Prob. 29PSCh. 6 - Prob. 1CPCh. 6 - Prob. 2CPCh. 6 - Prob. 3CPCh. 6 - Prob. 4CPCh. 6 - Prob. 5CPCh. 6 - Prob. 6CPCh. 6 - Prob. 7CPCh. 6 - Prob. 8CPCh. 6 - Prob. 9CP
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