Adequate information: Risk-free Asset E(rp)=11% s p =15% r f =5% Expected rate of return or complete portfolio=8% To compute: The proportion of investment in the risky portfolio (P) along with the proportion of risk-free asset. Introduction: Capital Allocation Line (CAL): It states the prevailing market equilibrium conditions for various portfolios which consist of both risky and risk-free investment. The formula used to calculate CAL is as follows: E ( r c ) = [ r f + y × ( E ( r p − r f ) ) ] Where E(r c )= Expected return of the portfolio r f =Risk free rate y=Proportion invested E(r p )=Expected return of the risky portfolio Risk-aversion: It can be described as the preference of sure return or outcome over an investment which has either equal value or even more high value.

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Answer 1

Question

Chapter 6, Problem 21PS

a

Summary Introduction

Adequate information:

Risk-free Asset E(rp)=11%

s_p=15%

r_f=5%

Expected rate of return or complete portfolio=8%

To compute: The proportion of investment in the risky portfolio (P) along with the proportion of risk-free asset.

Introduction:

Capital Allocation Line (CAL): It states the prevailing market equilibrium conditions for various portfolios which consist of both risky and risk-free investment. The formula used to calculate CAL is as follows:

E(rc)=[rf+y×(E(rp−rf))]

Where

E(r_c)= Expected return of the portfolio

r_f=Risk free rate

y=Proportion invested

E(r_p)=Expected return of the risky portfolio

Risk-aversion: It can be described as the preference of sure return or outcome over an investment which has either equal value or even more high value.

b

Summary Introduction

Adequate information:

Risk-free Asset E(rp)=11%

s_p=15%

r_f=5%

Expected rate of return or complete portfolio=8%

To compute: The standard deviation of the rate of return related to client’s portfolio.

Introduction:

Capital Allocation Line (CAL): It states the prevailing market equilibrium conditions for various portfolios which consist of both risky and risk-free investment. The formula used to calculate CAL is as follows:

E(rc)=[rf+y×(E(rp−rf))]

Where

E(r_c)= Expected return of the portfolio

r_f=Risk free rate

y=Proportion invested

E(r_p)=Expected return of the risky portfolio

Risk-aversion: It can be described as the preference of sure return or outcome over an investment which has either equal value or even more high value.

c

Summary Introduction

Adequate information:

Risk-free Asset E(rp)=11%

s_p=15%

r_f=5%

Expected rate of return or complete portfolio=8%

To compute: The standard deviations of another client with the condition that limit does not cross more than 12% and compare the risk aversion of both the clients.

Introduction:

Capital Allocation Line (CAL): It states the prevailing market equilibrium conditions for various portfolios which consist of both risky and risk-free investment. The formula used to calculate CAL is as follows:

E(rc)=[rf+y×(E(rp−rf))]

Where

E(r_c)= Expected return of the portfolio

r_f=Risk free rate

y=Proportion invested

E(r_p)=Expected return of the risky portfolio

Risk-aversion: It can be described as the preference of sure return or outcome over an investment which has either equal value or even more high value.

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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) = 16%, Op = 26%, rf = 4%. 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 6%. What proportion should she invest in the risky portfolio, P, and what proportion in the risk- free asset? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Risky portfolio Risk-free asset b. What will be the standard deviation of the rate of return on her portfolio? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Standard deviation % % O First client O Second client % 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?

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…

Answer 2

Question

Chapter 6, Problem 21PS

a

Summary Introduction

Adequate information:

Risk-free Asset E(rp)=11%

s_p=15%

r_f=5%

Expected rate of return or complete portfolio=8%

To compute: The proportion of investment in the risky portfolio (P) along with the proportion of risk-free asset.

Introduction:

Capital Allocation Line (CAL): It states the prevailing market equilibrium conditions for various portfolios which consist of both risky and risk-free investment. The formula used to calculate CAL is as follows:

E(rc)=[rf+y×(E(rp−rf))]

Where

E(r_c)= Expected return of the portfolio

r_f=Risk free rate

y=Proportion invested

E(r_p)=Expected return of the risky portfolio

Risk-aversion: It can be described as the preference of sure return or outcome over an investment which has either equal value or even more high value.

b

Summary Introduction

Adequate information:

Risk-free Asset E(rp)=11%

s_p=15%

r_f=5%

Expected rate of return or complete portfolio=8%

To compute: The standard deviation of the rate of return related to client’s portfolio.

Introduction:

Capital Allocation Line (CAL): It states the prevailing market equilibrium conditions for various portfolios which consist of both risky and risk-free investment. The formula used to calculate CAL is as follows:

E(rc)=[rf+y×(E(rp−rf))]

Where

E(r_c)= Expected return of the portfolio

r_f=Risk free rate

y=Proportion invested

E(r_p)=Expected return of the risky portfolio

Risk-aversion: It can be described as the preference of sure return or outcome over an investment which has either equal value or even more high value.

c

Summary Introduction

Adequate information:

Risk-free Asset E(rp)=11%

s_p=15%

r_f=5%

Expected rate of return or complete portfolio=8%

To compute: The standard deviations of another client with the condition that limit does not cross more than 12% and compare the risk aversion of both the clients.

Introduction:

Capital Allocation Line (CAL): It states the prevailing market equilibrium conditions for various portfolios which consist of both risky and risk-free investment. The formula used to calculate CAL is as follows:

E(rc)=[rf+y×(E(rp−rf))]

Where

E(r_c)= Expected return of the portfolio

r_f=Risk free rate

y=Proportion invested

E(r_p)=Expected return of the risky portfolio

Risk-aversion: It can be described as the preference of sure return or outcome over an investment which has either equal value or even more high value.

Expert Solution & Answer

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Answer 3

Question

Chapter 6, Problem 21PS

a

Summary Introduction

Adequate information:

Risk-free Asset E(rp)=11%

s_p=15%

r_f=5%

Expected rate of return or complete portfolio=8%

To compute: The proportion of investment in the risky portfolio (P) along with the proportion of risk-free asset.

Introduction:

Capital Allocation Line (CAL): It states the prevailing market equilibrium conditions for various portfolios which consist of both risky and risk-free investment. The formula used to calculate CAL is as follows:

E(rc)=[rf+y×(E(rp−rf))]

Where

E(r_c)= Expected return of the portfolio

r_f=Risk free rate

y=Proportion invested

E(r_p)=Expected return of the risky portfolio

Risk-aversion: It can be described as the preference of sure return or outcome over an investment which has either equal value or even more high value.

b

Summary Introduction

Adequate information:

Risk-free Asset E(rp)=11%

s_p=15%

r_f=5%

Expected rate of return or complete portfolio=8%

To compute: The standard deviation of the rate of return related to client’s portfolio.

Introduction:

Capital Allocation Line (CAL): It states the prevailing market equilibrium conditions for various portfolios which consist of both risky and risk-free investment. The formula used to calculate CAL is as follows:

E(rc)=[rf+y×(E(rp−rf))]

Where

E(r_c)= Expected return of the portfolio

r_f=Risk free rate

y=Proportion invested

E(r_p)=Expected return of the risky portfolio

Risk-aversion: It can be described as the preference of sure return or outcome over an investment which has either equal value or even more high value.

c

Summary Introduction

Adequate information:

Risk-free Asset E(rp)=11%

s_p=15%

r_f=5%

Expected rate of return or complete portfolio=8%

To compute: The standard deviations of another client with the condition that limit does not cross more than 12% and compare the risk aversion of both the clients.

Introduction:

Capital Allocation Line (CAL): It states the prevailing market equilibrium conditions for various portfolios which consist of both risky and risk-free investment. The formula used to calculate CAL is as follows:

E(rc)=[rf+y×(E(rp−rf))]

Where

E(r_c)= Expected return of the portfolio

r_f=Risk free rate

y=Proportion invested

E(r_p)=Expected return of the risky portfolio

Risk-aversion: It can be described as the preference of sure return or outcome over an investment which has either equal value or even more high value.

Expert Solution & Answer

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Answer 4

Question

Chapter 6, Problem 21PS

a

Summary Introduction

Adequate information:

Risk-free Asset E(rp)=11%

s_p=15%

r_f=5%

Expected rate of return or complete portfolio=8%

To compute: The proportion of investment in the risky portfolio (P) along with the proportion of risk-free asset.

Introduction:

Capital Allocation Line (CAL): It states the prevailing market equilibrium conditions for various portfolios which consist of both risky and risk-free investment. The formula used to calculate CAL is as follows:

E(rc)=[rf+y×(E(rp−rf))]

Where

E(r_c)= Expected return of the portfolio

r_f=Risk free rate

y=Proportion invested

E(r_p)=Expected return of the risky portfolio

Risk-aversion: It can be described as the preference of sure return or outcome over an investment which has either equal value or even more high value.

b

Summary Introduction

Adequate information:

Risk-free Asset E(rp)=11%

s_p=15%

r_f=5%

Expected rate of return or complete portfolio=8%

To compute: The standard deviation of the rate of return related to client’s portfolio.

Introduction:

Capital Allocation Line (CAL): It states the prevailing market equilibrium conditions for various portfolios which consist of both risky and risk-free investment. The formula used to calculate CAL is as follows:

E(rc)=[rf+y×(E(rp−rf))]

Where

E(r_c)= Expected return of the portfolio

r_f=Risk free rate

y=Proportion invested

E(r_p)=Expected return of the risky portfolio

Risk-aversion: It can be described as the preference of sure return or outcome over an investment which has either equal value or even more high value.

c

Summary Introduction

Adequate information:

Risk-free Asset E(rp)=11%

s_p=15%

r_f=5%

Expected rate of return or complete portfolio=8%

To compute: The standard deviations of another client with the condition that limit does not cross more than 12% and compare the risk aversion of both the clients.

Introduction:

Capital Allocation Line (CAL): It states the prevailing market equilibrium conditions for various portfolios which consist of both risky and risk-free investment. The formula used to calculate CAL is as follows:

E(rc)=[rf+y×(E(rp−rf))]

Where

E(r_c)= Expected return of the portfolio

r_f=Risk free rate

y=Proportion invested

E(r_p)=Expected return of the risky portfolio

Risk-aversion: It can be described as the preference of sure return or outcome over an investment which has either equal value or even more high value.

Expert Solution & Answer

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See solution

Answer 5

Chapter 6, Problem 21PS

a

Summary Introduction

Adequate information:

Risk-free Asset E(rp)=11%

s_p=15%

r_f=5%

Expected rate of return or complete portfolio=8%

To compute: The proportion of investment in the risky portfolio (P) along with the proportion of risk-free asset.

Introduction:

Capital Allocation Line (CAL): It states the prevailing market equilibrium conditions for various portfolios which consist of both risky and risk-free investment. The formula used to calculate CAL is as follows:

E(rc)=[rf+y×(E(rp−rf))]

Where

E(r_c)= Expected return of the portfolio

r_f=Risk free rate

y=Proportion invested

E(r_p)=Expected return of the risky portfolio

Risk-aversion: It can be described as the preference of sure return or outcome over an investment which has either equal value or even more high value.

b

Summary Introduction

Adequate information:

Risk-free Asset E(rp)=11%

s_p=15%

r_f=5%

Expected rate of return or complete portfolio=8%

To compute: The standard deviation of the rate of return related to client’s portfolio.

Introduction:

Capital Allocation Line (CAL): It states the prevailing market equilibrium conditions for various portfolios which consist of both risky and risk-free investment. The formula used to calculate CAL is as follows:

E(rc)=[rf+y×(E(rp−rf))]

Where

E(r_c)= Expected return of the portfolio

r_f=Risk free rate

y=Proportion invested

E(r_p)=Expected return of the risky portfolio

Risk-aversion: It can be described as the preference of sure return or outcome over an investment which has either equal value or even more high value.

c

Summary Introduction

Adequate information:

Risk-free Asset E(rp)=11%

s_p=15%

r_f=5%

Expected rate of return or complete portfolio=8%

To compute: The standard deviations of another client with the condition that limit does not cross more than 12% and compare the risk aversion of both the clients.

Introduction:

Capital Allocation Line (CAL): It states the prevailing market equilibrium conditions for various portfolios which consist of both risky and risk-free investment. The formula used to calculate CAL is as follows:

E(rc)=[rf+y×(E(rp−rf))]

Where

E(r_c)= Expected return of the portfolio

r_f=Risk free rate

y=Proportion invested

E(r_p)=Expected return of the risky portfolio

Risk-aversion: It can be described as the preference of sure return or outcome over an investment which has either equal value or even more high value.

Answer 6

Chapter 6, Problem 21PS

a

Summary Introduction

Adequate information:

Risk-free Asset E(rp)=11%

s_p=15%

r_f=5%

Expected rate of return or complete portfolio=8%

To compute: The proportion of investment in the risky portfolio (P) along with the proportion of risk-free asset.

Introduction:

Capital Allocation Line (CAL): It states the prevailing market equilibrium conditions for various portfolios which consist of both risky and risk-free investment. The formula used to calculate CAL is as follows:

E(rc)=[rf+y×(E(rp−rf))]

Where

E(r_c)= Expected return of the portfolio

r_f=Risk free rate

y=Proportion invested

E(r_p)=Expected return of the risky portfolio

Risk-aversion: It can be described as the preference of sure return or outcome over an investment which has either equal value or even more high value.

Answer 7

Chapter 6, Problem 21PS

a

Summary Introduction

Adequate information:

Risk-free Asset E(rp)=11%

s_p=15%

r_f=5%

Expected rate of return or complete portfolio=8%

To compute: The proportion of investment in the risky portfolio (P) along with the proportion of risk-free asset.

Introduction:

Capital Allocation Line (CAL): It states the prevailing market equilibrium conditions for various portfolios which consist of both risky and risk-free investment. The formula used to calculate CAL is as follows:

E(rc)=[rf+y×(E(rp−rf))]

Where

E(r_c)= Expected return of the portfolio

r_f=Risk free rate

y=Proportion invested

E(r_p)=Expected return of the risky portfolio

Risk-aversion: It can be described as the preference of sure return or outcome over an investment which has either equal value or even more high value.

Answer 8

b

Summary Introduction

Adequate information:

Risk-free Asset E(rp)=11%

s_p=15%

r_f=5%

Expected rate of return or complete portfolio=8%

To compute: The standard deviation of the rate of return related to client’s portfolio.

Introduction:

Capital Allocation Line (CAL): It states the prevailing market equilibrium conditions for various portfolios which consist of both risky and risk-free investment. The formula used to calculate CAL is as follows:

E(rc)=[rf+y×(E(rp−rf))]

Where

E(r_c)= Expected return of the portfolio

r_f=Risk free rate

y=Proportion invested

E(r_p)=Expected return of the risky portfolio

Risk-aversion: It can be described as the preference of sure return or outcome over an investment which has either equal value or even more high value.

Answer 9

b

Summary Introduction

Adequate information:

Risk-free Asset E(rp)=11%

s_p=15%

r_f=5%

Expected rate of return or complete portfolio=8%

To compute: The standard deviation of the rate of return related to client’s portfolio.

Introduction:

Capital Allocation Line (CAL): It states the prevailing market equilibrium conditions for various portfolios which consist of both risky and risk-free investment. The formula used to calculate CAL is as follows:

E(rc)=[rf+y×(E(rp−rf))]

Where

E(r_c)= Expected return of the portfolio

r_f=Risk free rate

y=Proportion invested

E(r_p)=Expected return of the risky portfolio

Risk-aversion: It can be described as the preference of sure return or outcome over an investment which has either equal value or even more high value.

Answer 10

c

Summary Introduction

Adequate information:

Risk-free Asset E(rp)=11%

s_p=15%

r_f=5%

Expected rate of return or complete portfolio=8%

To compute: The standard deviations of another client with the condition that limit does not cross more than 12% and compare the risk aversion of both the clients.

Introduction:

Capital Allocation Line (CAL): It states the prevailing market equilibrium conditions for various portfolios which consist of both risky and risk-free investment. The formula used to calculate CAL is as follows:

E(rc)=[rf+y×(E(rp−rf))]

Where

E(r_c)= Expected return of the portfolio

r_f=Risk free rate

y=Proportion invested

E(r_p)=Expected return of the risky portfolio

Risk-aversion: It can be described as the preference of sure return or outcome over an investment which has either equal value or even more high value.

Answer 11

c

Summary Introduction

Adequate information:

Risk-free Asset E(rp)=11%

s_p=15%

r_f=5%

Expected rate of return or complete portfolio=8%

To compute: The standard deviations of another client with the condition that limit does not cross more than 12% and compare the risk aversion of both the clients.

Introduction:

Capital Allocation Line (CAL): It states the prevailing market equilibrium conditions for various portfolios which consist of both risky and risk-free investment. The formula used to calculate CAL is as follows:

E(rc)=[rf+y×(E(rp−rf))]

Where

E(r_c)= Expected return of the portfolio

r_f=Risk free rate

y=Proportion invested

E(r_p)=Expected return of the risky portfolio

Risk-aversion: It can be described as the preference of sure return or outcome over an investment which has either equal value or even more high value.

Answer 12

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Answer 13

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Answer 14

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Answer 15

Ch. 6.A - Prob. 1P Ch. 6.A - Prob. 2P Ch. 6 - Prob. 1PS Ch. 6 - Prob. 2PS Ch. 6 - Prob. 3PS Ch. 6 - Prob. 4PS Ch. 6 - Prob. 5PS Ch. 6 - Prob. 6PS Ch. 6 - Prob. 7PS Ch. 6 - Prob. 8PS

Solution Summary: The author states the prevailing market equilibrium conditions for various portfolios which consist of both risky and risk-free investment.

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