EBK INVESTMENTS
11th Edition
ISBN: 9781259357480
Author: Bodie
Publisher: MCGRAW HILL BOOK COMPANY
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Question
Chapter 6, Problem 22PS
Summary Introduction
To calculate: The expected return considering Johnson’s risk constraint.
Introduction:
Capital Market Line (CML): It can be described as a graph which depicts the required return and risks of a portfolio related to a risk-free asset. It is also a group of risky assets which offers the best return- risk trading. The formula of CML is as follows:
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A) Calculate the Return on Investment (ROI) for each of the portfolio.
B) Based on the required rate of return, determine the Residual Income (RI)for each of the portfolio.
C) If King Bhd is to choose only ONE (1) portfolio to invest in, advise the management team based of your answer in (a).
Please provide a calculation for each of them.
Darren is considering the following investments; Alphabet, PayZero and FNQ Res.:
Probability of return (%)
Likely Return Alphabet (%)
Likely Return PayZero (%)
Likely Return FNQ Res. (%)
20
6
4
9
30
9
7
14
40
16
10
19
10
18
14
26
a) Calculate the expected return for each asset. b) Calculate the expected return on a portfolio comprising each asset weighted as follows
Asset Weighting (%)
Weighting (%)
Alphabet
20
PayZero
55
FNQ Res.
25
c) Explain to Darren the benefit of combining the assets into a portfolio instead of undertaking individual investments in Alphabet, PayZero and FNQ Res.
d) Calculate the risk attached to each of the investments proposed in Alphabet, PayZero and FNQ Res. Rank each investment in regard to its risk and return. Discuss the likely range of returns that could eventuate for each asset with a 95% level of accuracy.
Consider the following performance data for a portfolio manager:
Benchmark
Portfolio
Index
Portfolio
Weight
Weight
Return
Return
Stocks
0.65
0.7
0.11
0.12
Bonds
0.3
0.25
0.07
0.08
Cash
0.05
0.05
0.03
0.025
a.Calculate the percentage return that can be attributed to the asset allocation decision.
b.Calculate the percentage return that can be attributed to the security selection decision.
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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Chapter 8 Risk and Return; Author: Michael Nugent;https://www.youtube.com/watch?v=7n0ciQ54VAI;License: Standard Youtube License